Market Reactions and Corporate Philanthropy: a case study of the Wenchuan earthquake in China

Abstract

This paper studies the market reactions to corporate philanthropic giving in response to the 12 May 2008 Wenchuan earthquake in Sichuan, China. Based on a sample of 136 Chinese listed companies, our results indicate a significant and positive seven-day cumulative abnormal rise in the share prices of those companies making donations compared to those not making donations. Both timeliness and the amount of philanthropic giving generate significant market reactions, confirming Godfrey's assertion that corporate philanthropy can be perceived as a genuine manifestation of firms' underlying desire to raise their market values. However, when the sample firms are divided into two groups, government controlled and non-government controlled, Godfrey's assertion is challenged by our empirical results which show different market responses to the two different types of companies.

Notes

*Lin Song is associate professor of economics in the School of Economics and Finance at Xi'an Jiaotong University; Jianling Wang is lecturer in the School of Management at Xi'an Jiaotong University; Shujie Yao is professor of economics and head of the School of Contemporary Chinese Studies at the University of Nottingham and special professor of economics at Xi'an Jiaotong University; and Jian Chen is lecturer in the School of Contemporary Chinese Studies at the University of Nottingham. This research is supported by the ‘Fundamental Research Funds for the Central Universities’ of China (Project Number: 2010jdhz03). The authors are grateful for valuable comments by participants at the 2nd Conference of the International Forum for Contemporary Chinese Studies held in September 2009 at the University of Nottingham. The authors are also grateful for the valuable comments of one anonymous referee and the editor, Professor Shuisheng Zhao, but remain solely responsible for any errors or omissions herein. The authors can be reached by email at [email protected]

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