Information Acquisition, Inventory Levels, and Tax Incentives for Charitable Giving

40 Pages Posted: 5 Oct 2021

See all articles by Anil Arya

Anil Arya

Ohio State University (OSU) - Fisher College of Business

Tyler Atanasov

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Brian Mittendorf

Ohio State University (OSU) - Fisher College of Business

Dae-Hee Yoon

Yonsei University

Date Written: October 2021

Abstract

Many of America’s top corporate donors share a common feature: the bulk of their giving is in the form of in-kind products, not cash. This phenomenon is not a coincidence but rather a result of the tax code creating such a preference due to an “enhanced” deduction for inventory donations. In this paper, we utilize a parsimonious model of inventory choice under uncertainty to demonstrate that enhanced tax deductions not only promote giving, they also promote better learning of consumer demand for products in the retail market. An inventory stockout curtails a firm’s learning of precise consumer demand since the firm’s sales volume only reveals that the underlying consumer demand exceeded the inventory level. Tax incentives for donations of excess inventory encourage a firm to boost its inventory stocks which, in turn, boosts the firm’s learning of consumer preferences. Accounting for this informational role of tax incentives, the paper derives charitable giving patterns, socially-beneficial tax policy, and firms’ information acquisition choices.

Keywords: charitable giving, corporate philanthropy, demand uncertainty, inventory, taxation

JEL Classification: D21, H21, H25, L31, M40

Suggested Citation

Arya, Anil and Atanasov, Tyler and Mittendorf, Brian and Yoon, Dae-Hee, Information Acquisition, Inventory Levels, and Tax Incentives for Charitable Giving (October 2021). Available at SSRN: https://ssrn.com/abstract=3936910 or http://dx.doi.org/10.2139/ssrn.3936910

Anil Arya

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Tyler Atanasov

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Brian Mittendorf (Contact Author)

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Dae-Hee Yoon

Yonsei University ( email )

School of Business
Seoul
Korea, Republic of (South Korea)

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