Donations by Disaster-Afflicted Firms and Changes in Firm Value: Self-Protection and Reputation-Building Perspectives

34 Pages Posted: 29 Nov 2023 Last revised: 4 Dec 2023

See all articles by Ping Xiao

Ping Xiao

University of Melbourne - Melbourne Business School

Kai-Yu Hsieh

National Chengchi University (NCCU) - College of Commerce

Weining Bao

University of Connecticut

Date Written: November 19, 2023

Abstract

If a firm afflicted by a disaster chooses to donate to disaster relief, how will this decision affect the firm’s market value? From a self-protection perspective, diverting resources to support the public may jeopardize a firm’s continuity and thereby reduce its value. Yet from a reputation-building perspective, supporting the public in need may enhance corporate reputation and thus increase firm value. In this study, we contrasted the two perspectives to develop a conceptual framework consisting of various competing hypotheses. We tested these hypotheses using data on Chinese firms’ donations to disaster relief during the first COVID-19 outbreak. Our analysis shows that firms’ donations generally led to an increase in firm value. This was especially true for firms that were smaller or less profitable, firms that donated goods in addition to cash, and firms that donated before an increasing number of industry peers had done so. These results support the reputation-building perspective, suggesting that even when firms are afflicted by disaster exposure, their donations are still recognized as a value-adding investment. In contrast, donating a larger amount of cash and donating on an earlier day after the onset of the outbreak resulted in a lower firm value. These results align with the self-protection perspective, pointing to the need to consider resource preservation.


Forthcoming in Production and Operations Management

Keywords: ESG; disaster relief; firm value; reputation-building; self-protection; COVID-19 pandemic

Suggested Citation

Xiao, Ping and Hsieh, Kai-Yu and Bao, Weining, Donations by Disaster-Afflicted Firms and Changes in Firm Value: Self-Protection and Reputation-Building Perspectives (November 19, 2023). Available at SSRN: https://ssrn.com/abstract=4637261 or http://dx.doi.org/10.2139/ssrn.4637261

Ping Xiao (Contact Author)

University of Melbourne - Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

Kai-Yu Hsieh

National Chengchi University (NCCU) - College of Commerce ( email )

Taiwan

Weining Bao

University of Connecticut ( email )

Storrs, CT 06269-1063
United States

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