Impact of expenditures and corporate philanthropy disclosure on company value

Abstract

PurposeThe paper aims to estimate how corporate philanthropy expenditures and corporate philanthropy disclosure (in general and in different spheres) affect investment attractiveness of Russian companies.Design/methodology/approachTo assess the degree of corporate philanthropy disclosure the authors compiled lexicons based on a set of techniques: text and frequency analysis, correlations, principal component analysis. To adjust the existing classifications of corporate philanthropic activities to the Russian market the authors employed expert analysis. The empirical research base includes 83 Russian publicly traded companies for the period 2013–2019. To estimate the impact of indicators of corporate philanthropy disclosure on company's investment attractiveness the authors utilized panel data regression and random forest algorithm.FindingsWe compiled 2 Russian lexicons: one on general issues of corporate philanthropy and another one on philanthropic activities in various spheres (sports and healthcare; support for certain groups of people; social infrastructure; children protection and youth policy; culture, education and science). 2. The paper observes that the disclosure of non-financial data including that related to general issues of corporate philanthropy as well as to different spheres affects the market capitalization of the largest Russian companies. The results of regression analysis suggest that disclosure of altruism-driven philanthropic activities (such as corporate philanthropy in the sphere of culture, education and science) has a lesser impact on company's investment attractiveness than that of activities driven by business-related motives (sports and healthcare, children protection and youth policy).Research limitations/implicationsOur findings are important to management, investors, financial analysts, regulators and various agencies providing guidance on corporate governance and sustainability reporting. However, the authors acknowledge that the research results may lack generalizability due to the sample covering a single national context. Researchers are encouraged to test the proposed approach further on other countries' data by using the authors’ compiled lexicons.Originality/valueThe study aims to expand the domains of signaling and agency theories. First, this subject has not been widely examined in terms of emerging markets, the authors’ study is the first to focus on the Russian market. Secondly, the majority of scholars use text analysis to examine not only the impact of charitable donations but also the effect of corporate philanthropy disclosure. Thirdly, the authors provided the authors’ own lexicon of corporate philanthropy disclosure based on machine learning technique and expert analysis. Fourthly, to estimate the impact of corporate philanthropy on company's investment attractiveness the authors used the original approach based on combination of linear (regression), and non-linear methods (permutation importance. The authors’ findings extend the theoretical concept of Peterson et al. (2021): corporate philanthropy is viewed as the company strategy to reinforce its reputation, it helps to establish more efficient relationships with stakeholders which, in its turn, results in the increased business value.

Curvilinear effects of corporate philanthropy on stakeholders and financial performance

“…Corporate philanthropy refers to "a type of organizational social engagement that involves the allocation of time, money, or goods aimed at addressing a social need" (Muller et al, 2014, p. 1). While existing literature posits that such philanthropic activities serve dual purposessatisfying both commercial objectives and societal imperatives (Fedorova et al, 2023;Singh et al, 2019;Vishwanathan et al, 2020) -recent meta-analyses (Gautier and Pache, 2015;Liket and Simaens, 2013;Vishwanathan et al, 2020) suggest that the impact of corporate philanthropy on business performance remains inconclusive. In particular, Liket and Simaens (2013, p. 298) emphasized that "when studying the relationship between corporate philanthropy and corporate financial performance in a direct way, the evidence seems to paint a mixed picture," while some researchers have reported minimal or even null effects of corporate philanthropy on business performance (e.g.…”

“…, 2014, p. 1). While existing literature posits that such philanthropic activities serve dual purposes – satisfying both commercial objectives and societal imperatives (Fedorova et al. , 2023; Singh et al.…”