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Past Issue • Oct-Dec 2013

Corporate Philanthropy and its Effects on Firm Value

Critical differences in board tenures and characteristics between family and nonfamily firms affect firm value and performance, argue Professors Huimin Li, Harley Ryan, Lingling Wang and Baozhong Yang. Their study extends our understanding of the mechanisms that govern family firms and has important implications for founding families, investors and policy makers.

Although corporate charitable contributions are frequent and often substantial, there is no clear evidence on whether these expenditures have positive effects on firm revenues or performance or on shareholder wealth. Proponents assert that corporate giving is consistent with shareholder value maximisation since it is a channel for firms to promote their image to customers and to enhance their standing with regulatory agencies and legislators. Counterarguments suggest that corporate giving can often reflect conflicts of interests between shareholders and managers, where managers support charities based on personal preferences with corporate funds or enhance their personal reputation and social networks. Because it is difficult to measure the benefits that accrue to a firm from charitable contributions, these decisions can reflect the personal preferences of corporate managers, and thus, substantially depart from firm value and shareholder wealth maximisation. Given the ambiguity surrounding the benefits of corporate giving, an understanding of why firms make charitable contributions and what implications such contributions have for shareholder wealth is important.


  • Ronald

    Ronald W Masulis

    Scientia Professor in Finance and Macquarie Group Chair of Financial Services at the Australian Business School, University of New South Wales.
  • SayedW

    Syed Walid Reza

    Vice-Chancellor’s Research Fellow at the School of Economics and Finance, Queensland University of Technology.
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