Contribution to poverty alleviation: A waste or benefit for corporate financing?

Abstract

We investigate whether Chinese firms’ involvements in poverty alleviation affect their costs of financing. We find causal evidence that firms’ contributions to poverty alleviation result in lower cost of equity and lower cost of debt, suggesting that poverty alleviation is appreciated by both equity investors and debt investors. This result is more pronounced for non-state-owned firms, financially healthy firms, firms receiving more subsidies from local governments, and firms with larger spending in advertisements. Our mediating analyses further reveal that enhanced reputation and trust among stakeholders are the mechanisms through which corporate alleviation of poverty reduces the costs of financing.