Does giving always lead to getting? Evidence from the collapse of charity credibility in China

Abstract

Research on the relationship between corporate philanthropy and performance has largely been inconclusive. Taking advantage of the Chinese Red Cross corruption scandal in 2011 which aroused widespread suspiciousness and mistrust towards Chinese philanthropic organizations, this study investigates the role of charity credibility in shaping philanthropy-performance association. The results indicate that the collapse of charity credibility significantly mitigates the positive association between corporate philanthropy and performance, offering insight into the ambiguous relationship between giving and getting. Moreover, corporations cut down their donation expenditure in response to the charity credibility crisis. The findings are robust to a battery of sensitivity tests. In addition, the impact of credibility collapse is more pronounced in regions where charity credibility suffered more and in firms with private ownership. Our study extends the extant literature by investigating the relationship between corporate social and financial performance from the perspective of charity credibility for the first time. Furthermore, by finding a dramatic decline in corporate donations after the collapse of charity credibility, the study highlights the necessity for the nonprofit sector to enhance governance and improve transparency.