Ownership identity and corporate donations: evidence from a natural experiment in China
China Finance Review International
ISSN: 2044-1398
Article publication date: 18 December 2019
Issue publication date: 23 March 2020
Abstract
Purpose
Taking advantage of the 2008 Sichuan Great Earthquake as a natural experiment, the purpose of this paper is to examine the motives and effects of corporate donations by focusing on how firm ownership identity as the first-order governance mechanism affects the motives and effects of disaster relief donations.
Design/methodology/approach
The authors conduct regressions and market event studies, and use matching to address the confounding effects of differences in firm characteristics.
Findings
The authors hypothesize that private firms that are better governed than state-owned enterprises (SOEs) are more likely to donate for value maximization. Consistent with this, the authors find that private firms are more likely to donate to the 2008 Sichuan earthquake and donate more than SOEs. The effects of secondary governance variables in the donation determinant models (e.g. board independence and managerial ownership) are more consistent with the value maximization argument. While short-term market reaction to donation announcement is not significant for private firms, it is lower when SOEs make a large donation. Consistent with the hypothesis, the authors find that over the 24–36 months following the donation, private donors realize a higher abnormal stock return.
Research limitations/implications
The study contributes to the debate over the merits/costs of corporate donations and helps better understand how SOEs and private firms (particularly family-owned firms) differ in their governance and financial decision-making.
Practical implications
Both managers from private firms and SOEs can use the findings of this study to better guide their donation and other philanthropic decisions.
Originality/value
This study is the first to examine both the motives and effects of corporate donations by both private and SOEs taking advantage of the 2008 Sichuan, thereby significantly extending prior related studies.
Keywords
Acknowledgements
Hong Zou acknowledges the financial support from the Research Grants Council of Hong Kong Special Administrative Region, China (Project No. CityU 153510). The authors thank the Executive Editor (Wenfeng Wu) and the Associate Editor (Tong Yu), Mike Adams, Chen Lin and Jason Xiao for help comments on the paper.
Citation
Hoi, C.-K.(S)., Xiong, J. and Zou, H. (2020), "Ownership identity and corporate donations: evidence from a natural experiment in China", China Finance Review International, Vol. 10 No. 2, pp. 113-142. https://doi.org/10.1108/CFRI-11-2019-0154
Publisher
:Emerald Publishing Limited
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