Too Little or Too Much? Untangling the Relationship Between Corporate Philanthropy and Firm Financial Performance

Abstract

W hat is the relationship between corporate philanthropy and corporate financial performance? Some scholars argue that corporate philanthropy facilitates stakeholder cooperation and helps secure access to critical resources controlled by those stakeholders, suggesting that corporate philanthropy should be positively associated with corporate financial performance. In contrast, other scholars take a negative stance, suggesting that corporate philanthropy diverts valuable corporate resources and tends to inhibit corporate financial performance. Existing empirical studies have not found conclusive evidence on the corporate philanthropy-financial performance relationship. Integrating and extending existing perspectives, this study develops the argument that the relationship between corporate philanthropy and financial performance is best captured by an inverse U-shape. In addition, it posits that the inverse U-shaped relationship varies with the level of dynamism in firms' operational environment. Using a panel data set of 817 firms listed in the Taft Corporate Giving Directory from 1987 to 1999, we find strong support for these arguments.

Corporate Philanthropic Responses to Emergent Human Needs: The Role of Organizational Attention Focus

“…Yet Tobit models are only appropriate in situations where the latent variable can, in principle, take values below zero, which is not the case with corporate philanthropy. In addition, the Tobit model approach implicitly assumes that the decision to donate is a linear function of the same variables that predict donation amounts, in spite of recent research showing that the two decisions are better modeled independently (Wang et al 2008;Wang and Qian 2011). 1 For our research setting, we take the response of the Fortune Global 500 to the 2004 South Asian tsunami.…”

Is doing good good for you? how corporate charitable contributions enhance revenue growth

“…This study is important because it highlights the nonlinear relationship between philanthropy and financial performance. However, Wang et al (2008) do not attempt to address the causality issue; their 186 B. Lev, C. Petrovits, and S. Radhakrishnan results are also consistent with high financial performance driving more philanthropy as a managerial perquisite.…”

“…A recent study by Wang, Choi, and Li (2008) does directly examine the effect of giving on financial performance. Wang et al reports a positive regression coefficient on corporate giving and a negative coefficient on the quadratic term for corporate giving, which they interpret as decreasing marginal returns at higher levels of giving.…”

The differentiated effects of CSR actions in the service industry

“…The negative relationship is explained by the thesis that high investment in CSR would result in additional costs that would reduce profits and shareholder wealth (Hull and Rothenberg, 2008). Empirical evidence demonstrates that CSR investment can be destructive to financial performance when it passes a certain level (Wang et al, 2008). The neutral relationship is explained by the complexity of both the firm and the society, which makes it difficult to establish a simple and direct link between CSR and firm performance (Margolis and Walsh, 2003;Ullmann, 1985;Waddock and Graves, 1997).…”