Corporate Giving Decision: Agency Problem Hypothesis vs. Shareholder Wealth Maximization Hypothesis

Abstract

We examine the determinants and consequences of corporate giving decisions by agency theory, corporate governance mechanisms, and shareholder wealth maximization. The results show that firms with more serious agency problems are more likely to engage in persistent corporate giving, while firms engaged in maximizing shareholder profits are more likely to engage in one-off corporate giving. Moreover, as corporate giving increases, shareholders reduce their valuation of firm cash holdings, and investors respond negatively to corporate giving. Using subsamples, institutional settings are examined to explore the differences in giving decisions between family businesses and professional managers. Key words: Corporate giving decision, agency problem, corporate governance, shareholder wealth maximization