Abstract
This study uncovers a new determinant of director independence beyond business transactions and social connections: corporate charitable contributions to independent director-affiliated charities (affiliated donations). We show that affiliated donations affect board monitoring effectiveness. Excess CEO compensation is greater when a firm donates to the charities affiliated with compensation committee members, especially when the committee chair, multiple committee members, or a large fraction of the compensation committee are involved. However, the effect of affiliated donations on compensation practices is attenuated by strong corporate governance, as expressed by strong board oversight and concentrated stock ownership.
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