Advertisement

Journal of Business Ethics

, Volume 151, Issue 2, pp 375–390 | Cite as

Corporate Philanthropy, Reputation Risk Management and Shareholder Value: A Study of Australian Corporate giving

  • Kate Hogarth
  • Marion Hutchinson
  • Wendy Scaife
Article

Abstract

This study examines the role of corporate philanthropy (CP) in the management of reputation risk and shareholder value of the top 100 ASX listed Australian firms for the 3 years 2011–2013. The results of this study demonstrate the business case for corporate philanthropy and hence encourage corporate philanthropy by showing increasing firms’ investment in corporate giving as a percentage of profit before tax, increases the likelihood of an increase in shareholder value. However, the proviso is that firms must also manage their reputation risk at the same time. There is a negative association between corporate giving and shareholder value (Tobin’s Q) which is mitigated by firms’ management of reputation. The economic significance of this result is that for every cent in the dollar the firm spends on corporate giving, Tobin’s Q will decrease by 0.413 %. In contrast, if the firm increase their reputation by 1 point then Tobin’s Q will increase by 0.267 %. Consequently, the interaction of corporate giving and reputation risk management is positively associated with shareholder value. These results are robust while controlling for potential endogeneity and reverse causality. This paper assists both academics and practitioners by demonstrating that the benefits of corporate philanthropy extend beyond a gesture to improve reputation or an attempt to increase financial performance, to a direct collaboration between all the factors where the benefits far outweigh the costs.

Keywords

Corporate philanthropy Reputation risk management Shareholder value 

Notes

Acknowledgments

We would like to thank the London Benchmarking Group in Australia for their encouragement and assistance in this project. We thank the participants at the 2015 European Accounting Association conference Glasgow and Janet Mack for their insightful comments. We would also like to thank QUT for financial assistance and research assistants Alexandra Williamson and Marie Crittall.

References

  1. Ader, C. (1995). A longitudinal study of agenda setting for the issue of environmental pollutions. Journalism and Mass Communication Quarterly, 72(2), 300–311.CrossRefGoogle Scholar
  2. Agrawal, A., & Knoeber, C. R. (1996). Firm performance and mechanisms to control agency problems between managers and shareholders. Journal of Financial and Quantitative Analysis, 31(3), 377–397.CrossRefGoogle Scholar
  3. Argenti, P. (2005). The challenge of protecting reputation. Financial Times, Mastering Risk, September 30:2–3.Google Scholar
  4. Atkins, D., Bates, I., & Drennan, L. (2006). Reputational Risk: A question of trust. London: Lessons Professional Publishing.Google Scholar
  5. Australian Philanthropy Figures. (2015). Philanthropy Australia. Viewed April 11 2016, www.philanthropy.org.au.
  6. Bae, J., & Cameron, G. T. (2006). Conditioning effect of prior reputation on perception of corporate giving. Public Relations Review, 32, 144–150.CrossRefGoogle Scholar
  7. Bai, X., & Chang, J. (2015). Corporate social responsibility and firm performance: The mediating role of marketing competence and the moderating role of market environment. Asia-Pacific Journal of Management, 32, 505–530. doi: 10.1007/s10490-015-9409-0.CrossRefGoogle Scholar
  8. Bennett, R. (1997). Corporate philanthropy in the UK: altruistic giving or marketing communications weapon? Journal of Marketing Communications., 3(2), 87–109.CrossRefGoogle Scholar
  9. Berman, S. L., Wicks, A. C., Kotha, S., & Jones, T. M. (1999). Does stakeholder orientation matter? The relationship between stakeholder management models and firm financial performance. Academy of Management Journal, 42, 488–506.Google Scholar
  10. Bloom, M., & Milkovich, G. T. (1998). Relationships among risk, incentive pay, and organizational performance. Academy of Management Journal, 41(3), 283–297.Google Scholar
  11. Bohren, Y., & Strom, R. (2010). Governance and politics: Regulating independence and diversity in the board room. Journal of Business Finance & Accounting., 37(9–10), 1281–1308.CrossRefGoogle Scholar
  12. Brammer, S., & Millington, A. (2004). The development of corporate charitable contributions in the UK: A stakeholder analysis. Journal of Management Studies, 41(8), 1411–1434.CrossRefGoogle Scholar
  13. Brammer, S., & Millington, A. (2005). Corporate reputation and philanthropy: An empirical analysis. Journal of Business Ethics, 61, 29–44.CrossRefGoogle Scholar
  14. Brown, N., & Deegan, C. (1998). The public disclosure of environmental performance information—A dual test of media agenda setting theory and legitimacy theory. Accounting and Business Review, 29, 21–41.CrossRefGoogle Scholar
  15. Bruch, H., & Walter, F. (2005). The keys to rethinking corporate philanthropy. MIT Sloan Management Review, 47(1), 49–55.Google Scholar
  16. Campbell, D., Moore, G., & Metzger, M. (2002). Corporate philanthropy in the U.K. 1985–2000: Some empirical findings. Journal of Business Ethics, 27(4), 363–376.Google Scholar
  17. Carroll, C. E. (2004). How the mass media influence perceptions of corporate reputation: Exploring agenda-setting effects within business news coverage. Unpublished doctoral dissertation, The University of Texas, Austin.Google Scholar
  18. Carroll, A. B., & Buchholtz, A. K. (2011) Business and society: ethics, sustainability, and stakeholder management. https://books.google.com.au/books?isbn=0538453168.
  19. Centre for Corporate Public Affairs. (2009). Impact of the economic downturn on corporate Community investment. Sydney: Final report to the Department of Social Services.Google Scholar
  20. Chester, C., & Lawrence, S. (2008). The business of doing good: An Australasian perspective on corporate philanthropy. The Journal of Corporate Citizenship, 31, 89–104.CrossRefGoogle Scholar
  21. Chikoto, G. L., & Neely, D. N. (2014). Building nonprofit financial capacity the impact of revenue concentration and overhead costs. Nonprofit and Voluntary Sector Quarterly, 43(3), 570–588.CrossRefGoogle Scholar
  22. Christensen, C. M., & Raynor, M. E. (2003). The innovator’s solution: Creating and sustaining successful growth. Cambridge, MA: Harvard Business School Press.Google Scholar
  23. Chronicle of Philanthropy. (2012). http://chronicle.com/. Accessed November 10, 2015.
  24. Collins, M. (1994). Global corporate philanthropy and relationship marketing. European Management Journal, 12(2), 226–233.CrossRefGoogle Scholar
  25. Committee Encouraging Corporate Philanthropy. (2015). Giving around the globe 2015 edition. Google Scholar
  26. Deephouse, D. (2000). Media reputation as a strategic resource: integration of mass communication and resource-based theories. Journal of Management, 26, 1091–1112.CrossRefGoogle Scholar
  27. Dickson, P. R. (1992). Toward a general theory of competitive rationality. Journal of Marketing, 56, 16–83.CrossRefGoogle Scholar
  28. Ditlev-Simonsen, C. D., & Midttun, A. (2011). What motivates managers to pursue corporate responsibility? A survey among key stakeholders. Corporate Social Responsibility and Environmental Management, 18(1), 25–38.CrossRefGoogle Scholar
  29. Dowling, G. (2006). Reputation risk: it is the Board’s ultimate responsibility. The Journal of Business Strategy, 27(2), 59–69.CrossRefGoogle Scholar
  30. Downes, J., Schofield, J., & Fentiner Van Vlissengen, R. (2012). What gives? How companies invest in communities. Australia: Catalyst. Retrieved December 27, 2015, from http://www.catalyst.org.au/campaigns/full-disclosure/138-what-gives-how-companies-are-investing-in-communities.
  31. Epstein, M. J., & Buhovac, A. R. (2014). Making sustainability work: Best practices in managing and measuring corporate social, environmental, and economic impacts. California: Berrett-Koehler Publishers.Google Scholar
  32. FASB Accounting Standards (No. 117) June, 1993.Google Scholar
  33. Fombrun, C. J. (1996). Reputation. Boston MA: Harvard Business School Press.Google Scholar
  34. Fombrun, C., & Rindova, V. (2000). The Road to Transparency: Reputation Management at Royal Dutch Shell. In M. Schultz, M. J. Hatch, & M. H. Larsen (Eds.), The Expressive Organization: Linking Identity, Reputation and the Corporate Brand (pp. 77–97). Oxford, UK: Oxford University Press.Google Scholar
  35. Fombrun, C., & Shanley, M. (1990). What’s in the name? Reputation building and corporate strategy, Academy of Management Journal, 33, 233–258.Google Scholar
  36. Foster, M. K., Meinhard, A. G., Berger, I. E., & Krpan, P. (2008). Corporate philanthropy in the Canadian context: From damage control to improving society. Nonprofit and Voluntary Sector Quarterly, 38(3), 441–466.CrossRefGoogle Scholar
  37. Friedman, M. (1970). The social responsibility of business is to increase its profits. In T. L. Beauchamp, N. E. Bowie, & D. G. Arnold (Eds.), Ethical Theory and Business (8th ed., p. 55). New Jersey: Pearson.Google Scholar
  38. Galaskiewicz, J. (1997). An urban grants economy revisited: Corporate charitable contributions in the twin cities, 1979–81, 1987–1989. Administrative Science Quarterly, 42, 445–471.CrossRefGoogle Scholar
  39. Gardberg, N. A., & Fombrun, C. (2006). Corporate citizenship: creating intangible assets across institutional environments. Academy of Management Review, 31(2), 329–346.CrossRefGoogle Scholar
  40. Gautier, A., & Pache, A.-C. (2015). Research on corporate philanthropy: a review and assessment. Journal of Business Ethics, 126(3), 343–369.CrossRefGoogle Scholar
  41. Godfrey, P. (2005). The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review, 30(4), 777–798.CrossRefGoogle Scholar
  42. Godfrey, P., Merrill, C. B., & Hansen, J. M. (2009). The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis. Strategic Management Journal, 30, 425–445.CrossRefGoogle Scholar
  43. Griffin, J., & Mahon, J. F. (1997). The corporate social performance and corporate financial performance debate: Twenty-five years of incomparable research’. Business and Society, 36(1), 5–31.CrossRefGoogle Scholar
  44. Hansen, S. D., Dunford, B. B., Boss, A. D., Boss, R. W., & Angermeier, I. (2011). Corporate social responsibility and the benefits of employee trust: a cross-disciplinary perspective. Journal of Business Ethics, 102(1), 29–45.CrossRefGoogle Scholar
  45. Hempel, J. (2003) A corporate cornucopia, Business Week, December.Google Scholar
  46. Himmelstein, J. L. (1997). Looking good and doing good. Bloomington: Indiana University Press.Google Scholar
  47. Janis, I. L., & Fadner, R. (1965). The coefficient of imbalance. In H. Lasswell, N. Leites, & Associates (Eds.), Language of Politics (pp. 153–169). Cambridge, MA: MIT Press.Google Scholar
  48. Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14(3), 8–21.CrossRefGoogle Scholar
  49. Knauer, N. J. (1994). The paradox of corporate giving: tax expenditures, the nature of the corporation and the social construction of charity. DePaul Law Review, 44(1), 1–97.Google Scholar
  50. Kren, L., & Kerr, J. (1997). The effects of outside directors and board shareholders on the relation between chief executive compensation and firm performance. Accounting and Business Research, 27(4), 297–309.CrossRefGoogle Scholar
  51. Likert, K., & Simaens, A. (2015). Battling the devolution in the research on corporate philanthropy. Journal of Business Ethics, 126(2), 285–308.CrossRefGoogle Scholar
  52. Loughran, T., & Mcdonald, B. (2011). When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks. Journal of Finance, 66, 35–65.CrossRefGoogle Scholar
  53. Lowengard, M. (1989). Community relations: New approaches to building consensus. Public Relations Journal, 45(10), 24.Google Scholar
  54. Luo, X., & Bhattacharya, C. B. (2006). Corporate social responsibility, customer satisfaction, and market value. Journal of Marketing, 70(4), 1–18.CrossRefGoogle Scholar
  55. Madden, K., & Scaife, W. (2007). Corporate giving: Who gives and why? Wymer (pp. 145–164). London: W. and Sargeant A. The Routledge Companion to Nonprofit Marketing.Google Scholar
  56. Manne, H. G. (1973). The limits and rationale of corporate altruism: An individualistic model. Virginia Law Review, 59(4), 708–722.CrossRefGoogle Scholar
  57. McCombs, M. E., & Shaw, D. L. (1972). The agenda-setting function of mass media. Public Opinion Quarterly, 36, 176–187.CrossRefGoogle Scholar
  58. McKinsey Quarterly (2008). The state of corporate philanthropy: A McKinsey global survey. Accessed 27, December 2015 http://www.centerforgiving.org/Portals/0/The%20State%20of%20Corporate%20Philanthropy-%20A%20McKinsey%20Global%20Survey%202008.pdf.
  59. Murray, K. (2003). Reputation—Managing the single greatest risk facing business today. Journal of Communication Management, 8(2), 142–149.CrossRefGoogle Scholar
  60. Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization Studies, 24, 403–441.CrossRefGoogle Scholar
  61. Patten, D. M. (2007). Does the market value corporate philanthropy? Evidence from the Response to the 2004 tsunami relief effort. Journal of Business Ethics, 81(3), 599–607.CrossRefGoogle Scholar
  62. Porter, M. E., & Kramer, M. R. (2002). The competitive advantage of corporate philanthropy. Harvard Business Review, 80(12), 56–69.Google Scholar
  63. Saiia, D. H., Carroll, A. B., & Buchholtz, A. K. (2003). Philanthropy as strategy: when corporate charity begins at home. Business and Society, 42, 169–201.CrossRefGoogle Scholar
  64. Seifert, B., Morris, S. A., & Bartkus, B. R. (2003). Comparing big givers and small givers: financial correlates of corporate philanthropy. Journal of Business Ethics, 45, 195–211.CrossRefGoogle Scholar
  65. Seifert, B., Morris, S. A., & Bartkus, B. R. (2004). Having, giving, and getting: slack resources, corporate philanthropy, and firm financial performance. Business Society, 43, 135–161.CrossRefGoogle Scholar
  66. Setia-Atmaja, L., Tanewski, G. A., & Skully, M. (2009). The role of dividends, debt and board structure in the governance of family controlled firms. Journal of Business Finance & Accounting, 36(7), 863–898.CrossRefGoogle Scholar
  67. Shamma, H. M. (2012). Toward a comprehensive understanding of corporate reputation: concept, measurement and implications. International Journal of Business Management, 7(16), 151–169.Google Scholar
  68. Shaw, B., & Post, F. R. (1992). A moral basis for corporate philanthropy. Journal of Business Ethics, 11(10), 771–779.CrossRefGoogle Scholar
  69. Simon, F. L. (1995). Global corporate philanthropy: A strategic framework. International Marketing Review, 12(4), 20–37.CrossRefGoogle Scholar
  70. Sinnewe, E., & Niblock, S. J. (2015). Trial by Media: An Empirical Investigation of Corporate Reputation and Stock Returns in Australia. Journal of Media Economics, 28(1), 41–60.CrossRefGoogle Scholar
  71. Smith, C. N. (1994). The new corporate philanthropy. Harvard Business Review, 72(3), 105–116.Google Scholar
  72. Stendardi, E. J. (1992). Corporate philanthropy: The redefinition of enlightened self-interest. The Social Science Journal, 29(1), 21–30.CrossRefGoogle Scholar
  73. Su, J., & He, J. (2010). Does giving lead to getting? Evidence from Chinese private enterprises. Journal of Business Ethics, 93(1), 73–90.CrossRefGoogle Scholar
  74. Sum, L. S., & Henry, G. J. (2013). A landscape study of donations in Singapore. World Future Foundation. Accessed 27, December 2015, http://www.worldfuturefound.org/a/Research/Papers/list_65_2.html.
  75. Tong, S. (2013). Exploring corporate risk transparency: Corporate risk disclosure and the interplay of corporate reputation, corporate trust and media usage in initial public offerings. Corporate Reputation Review, 16, 131–149.CrossRefGoogle Scholar
  76. Wang, H., Choi, J., & Li, J. (2008). Too little or too much? Untangling the relationship between corporate philanthropy and firm financial performance. Organisational Science, 19, 143–159.CrossRefGoogle Scholar
  77. Wang, H., & Qian, C. (2011). Corporate philanthropy and corporate financial performance: The roles of stakeholder response and political access. Academy of Management Journal, 54(6), 1159–1181.CrossRefGoogle Scholar
  78. Weber, R. P. (1990). Basic content analysis (2nd ed.). Newbury Park, CA: Sage.CrossRefGoogle Scholar
  79. Werbel, J. D., & Carter, S. M. (2002). The CEO’s influence on corporate foundation giving. Journal of Business Ethics, 40, 47–60.CrossRefGoogle Scholar
  80. Windsor, D. (2006). Corporate social responsibility: three key approaches. Journal of Management Studies, 43(1), 93–114.CrossRefGoogle Scholar
  81. Wooldridge, J. (2002). Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press.Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2016

Authors and Affiliations

  1. 1.Queensland University of TechnologyBrisbaneAustralia

Personalised recommendations