Loss of Morality and Later Benevolence? The Relationship of Corporate Violation and Charitable Donation

Abstract

The instrumental motivation of corporate charitable donation has been gaining more and more attention in recent years. This paper uses a data set of 2,726 companies listed on Shanghai Stock Exchange or Shenzhen Stock Exchange from 2008 to 2015 to analyze the relationship of corporate violation and the following charitable donation. It arrives at the conclusion as follows: firstly, corporate charitable donation is positively linked to corporate violation, which means companies tend to increase charitable donation after committing wrongdoings. Secondly, motivation analysis indicates that the phenomenon results from political motive. Non-state-owned companies are more likely to use charitable donation as a tool to restore corporate image. On the other hand, among non-state-owned companies, those companies without political connections have stronger motivation to increase charitable donation after committing violation actions. Thirdly, increasing charitable donation after violation is proved to be more pronounced for companies in maturity stage of the corporate life cycle. Furthermore, economic consequences like improved financial capacity and higher government subsidies brought by donation rationalize the action. Despite charitable donation, companies will also use other forms of corporate social responsibility or other rent seeking methods to reduce the negative effects of violation. This paper indicates the hidden motivation of charitable donation from a perspective of corporate violation and provides advice for establishing better corporate donation mechanism and corporate supervision.