Corporate Philanthropy, Reputation Risk Management and Shareholder Value: A Study of Australian Corporate giving
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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.
KeywordsCorporate philanthropy Reputation risk management Shareholder value
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.
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