The value relevance of corporate donations

Abstract

This paper examines whether corporate donations, a form of CSR activity, have a positive impact on firm value. The impact of donations on value may suffer from agency problems or poor quality in the choice of donee. However, we expect that, on balance, donations would have a positive impact on value. We use a sample of 52,199 firm-year observations from 42 countries for the period 1998 to 2014 and conduct our tests using the Collins et al. (1999) adaptation of the Ohlson (1995) model. Our evidence supports our expectation that corporate donations have a positive impact on firm value. We also find that CSR performance, and the country level variables for culture and corruption, moderate the contribution to value. Our results are robust to several sensitivity tests including an alternative measure of donations, additional country-level control variables, and variation in the study sample.