Stock market reaction to corporate philanthropic response and silence: does charity style matter?

ABSTRACT

In this study, we multi-dimensionally assess the stock market reaction to the corporate charitable giving for anti-epidemic of COVID-19. Through statistical comparison of giving data from Chinese listed firms, we find that the market reaction is positive and significant only for companies reported in-kind donations. Furthermore, this reaction is larger for firms that donate goods related to their main businesses and do not disclose the value of donations. Meanwhile, the non-contributing companies suffer negative market adjustments when press releases announcing donations of their peers. This new finding of the asymmetric impacts from different types of donations, namely monetary donations and in-kind donations, on firms’ stock performance contributes to the literature, as typical researches using only monetary donations, or the total reported contribution might not adequately evaluate the impact of charitable giving.

KEYWORDS:

• Charitable giving
• market reaction
• donation type
• philanthropic silence

JEL CLASSIFICATION:

• G14
• L2
• M14

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

¹ More detailed literature review can refer to Bekkers and Wiepking (2011); Gautier and Pache (2015).

² Shanghai Securities News, Securities Times, and China Securities News.

³ http://www.cninfo.com.cn/

⁴ https://finance.sina.com.cn/

⁵ 115 of the donated sample companies reported both monetary and in-kind donations in their press releases.

⁶ It must be noted that we only investigate the stock market’s reaction to dollar donations in a truly short term. The monetary donation may help firms to gain long-term benefits, such as more loyal customers and the increase in profitability.

⁷ We try the three highest options of monetary donation values as cut-offs-1 million RMB (97 firms), 2 million RMB (74 firms), and 10 million RMB (54 firms). There are no significant differences in the mean CAR among various categories of contribution value with the exception of using 10 million RMB as the cut-off. Compared with the results in Pattern (2008), we do not find the inconsistent results regarding the donations of exactly 10 million RMB, possibly because China’s stock market is dominated by unsophisticated retail investors and they may not perceive donations of exactly 10 million RMB as ‘being ingratiating attempts at garnering goodwill’. In addition, we do not find significant positive reactions to monetary donation regardless of the amount, which provide evidence in support of our first explanation. Owing to space constraints, we only report results using 10 million RMB in the table. Results using other cut-offs are available from the authors upon request. We thank the anonymous referee for the valuable suggestions.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [Project no. 71973097], Shanghai Institute of International Finance and Economics.