Competing for private investments in public equity in China: The role of corporate philanthropy

Abstract

This study examines whether corporate philanthropy improves firms' competitiveness in the market for private investments in public equity (PIPEs). Adopting a Chinese PIPE sample between 2007 and 2019, corporate donations have been observed to increase the likelihood of issuers' PIPE applications being approved by the Chinese Securities Regulatory Commission (CSRC). It is also shown that CSRC spends less time reviewing PIPE applications of donating firms. Consistent with the signalling argument, we find that firms with corporate donations may be unlikely to act opportunistically in PIPE issuing. Further, the effect of corporate donations is stronger in competitive industries and large‐scale PIPEs. Finally, short‐run post‐issuance abnormal returns tend to be higher for PIPE issuers with corporate philanthropy. Overall, our findings indicate that corporate philanthropy can serve as a differentiation strategy to compete for PIPEs.