Crowding‐in and crowding‐out effects of corporate philanthropy on R&D investment

Abstract

Using a sample of Chinese‐listed firms over the period 2007–2018, this study investigates the effect of corporate philanthropy (CP) on research and development (R&D) investment and the mechanisms involved. The results show that an inverted U‐shaped relationship exists between CP and R&D investment, suggesting that CP first has a crowding‐in effect and then a crowding‐out effect on R&D investment. Further mechanism analysis shows that the crowding‐in effect of CP on R&D investment is partly realized through the path of obtaining government subsidies and mitigating financing constraints, and the crowding‐out effect is partly the result of agency conflicts and resource allocation.

Dual effects of corporate philanthropy on firm value: Evidence from China

“…CP is a voluntary behavior of CSR, following the principle of doing after balancing firm scale, profitability, risk and other financial characteristics (Li et al, 2012). Some scholars concerning the economic consequences of CP find that CP has an inverted U‐shaped effect on corporate innovation investment (Gao et al, 2017; Zhang et al, 2022) and financial performance (Wang et al, 2008; Zou, 2021), suggesting that there is a rational boundary for CP to promote innovation investment and financial performance. Within a rational boundary, an increase in CP helps firms obtain resource support from a variety of stakeholders, which can promote innovation investment and financial performance.…”

“…According to agency theory, managers always tend to overinvest firm resources into CP to pursue their personal interests without considering the long‐term development strategy of firms (Barnea & Rubin, 2010). Therefore, an excessive level of CP may only be an opportunistic behavior of managers abusing firm resources for their own self‐interest (Zhang et al, 2022), and is a form of agency conflict in essence (Ho & Huang, 2017; Masulis & Reza, 2015). Based on this, we expect that, the effect of CP on firm value is more complex than the efficiency view or the agency view that many previous studies have assumed, and the possibility of the two contradictory views mainly stems from whether CP is excessive.…”