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Corporate Philanthropy, Reputation Risk Management and Shareholder Value: A Study of Australian Corporate giving

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Abstract

This study examines the role of corporate philanthropy (CP) in the management of reputation risk and shareholder value of the top 100 ASX listed Australian firms for the 3 years 2011–2013. The results of this study demonstrate the business case for corporate philanthropy and hence encourage corporate philanthropy by showing increasing firms’ investment in corporate giving as a percentage of profit before tax, increases the likelihood of an increase in shareholder value. However, the proviso is that firms must also manage their reputation risk at the same time. There is a negative association between corporate giving and shareholder value (Tobin’s Q) which is mitigated by firms’ management of reputation. The economic significance of this result is that for every cent in the dollar the firm spends on corporate giving, Tobin’s Q will decrease by 0.413 %. In contrast, if the firm increase their reputation by 1 point then Tobin’s Q will increase by 0.267 %. Consequently, the interaction of corporate giving and reputation risk management is positively associated with shareholder value. These results are robust while controlling for potential endogeneity and reverse causality. This paper assists both academics and practitioners by demonstrating that the benefits of corporate philanthropy extend beyond a gesture to improve reputation or an attempt to increase financial performance, to a direct collaboration between all the factors where the benefits far outweigh the costs.

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Notes

  1. This explains why this research found many Australian firms reluctant to report a definitive figure of corporate giving.

  2. The Durbin–Wu–Hausman (DWH) test which determines whether there is no endogeneity in the equation (null hypotheses). The significant DWH tests (F (1, 681); p = 0.0000) indicate that endogeneity is present in the OLS estimates and the instruments have corrected for it.

  3. Examples such as companies are praised for their action, or an award, monetary or other kind of donation etc.

  4. Examples such as companies are criticized for action etc.

  5. We purchased this data from a UK firm that collects this information.

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Acknowledgments

We would like to thank the London Benchmarking Group in Australia for their encouragement and assistance in this project. We thank the participants at the 2015 European Accounting Association conference Glasgow and Janet Mack for their insightful comments. We would also like to thank QUT for financial assistance and research assistants Alexandra Williamson and Marie Crittall.

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  1. Queensland University of Technology, Brisbane, Australia

    Kate Hogarth, Marion Hutchinson & Wendy Scaife

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  1. Kate Hogarth
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  2. Marion Hutchinson
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Correspondence to Marion Hutchinson.

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Hogarth, K., Hutchinson, M. & Scaife, W. Corporate Philanthropy, Reputation Risk Management and Shareholder Value: A Study of Australian Corporate giving. J Bus Ethics 151, 375–390 (2018). https://doi.org/10.1007/s10551-016-3205-8

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