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Value-Enhancing Social Responsibility: Market Reaction to Donations by Family vs. Non-family Firms with Religious CEOs

Abstract

Using a signaling framework, we argue that ethical behavior as evidenced by charitable donations is viewed more positively by investors when seen not to be based on self-serving motives but rather on authentic generosity that builds moral capital. The affirmed religiosity of CEOs may make their ethical position more credible, while their embeddedness within a family business suggests that CEOs are backed by powerful owners with long-time horizons and a desire to build moral capital with stakeholders. We find in a study of market responses to 1572 corporate donations by S&P 1500 firms that financial markets react more positively to charitable initiatives from firms with religion-declared CEOs, but only if these are family businesses.

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Notes

  1. According to Rokeach (1973, p. 5), “Values are generalized, enduring beliefs about the personal and social desirability of certain modes of conduct or end-states of existence.”

  2. As a robustness check we removed all donations by corporate foundations and reran our analyses on the smaller sample. Our results remained robust.

  3. Anderson et al. (2012) report an average family ownership of 25.5% in their sample, using the 5% cutoff.

  4. Very few studies directly investigate charitable donations by family firms and we are not aware of any study that investigates donations by S&P 1500 family firms. Dyer and Whetten (2006) is the only paper that uses the U.S. data for large corporations (S&P 500). Our study both extends the sample of firms and the number of years.

  5. We also have 41 cases with Hindu beliefs, but those CEOs are exclusively from non-family firms and hence cannot be analyzed separately.

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Correspondence to Zhenyang Tang.

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Maung, M., Miller, D., Tang, Z. et al. Value-Enhancing Social Responsibility: Market Reaction to Donations by Family vs. Non-family Firms with Religious CEOs. J Bus Ethics 163, 745–758 (2020). https://doi.org/10.1007/s10551-019-04381-8

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Keywords

  • Family firms
  • Religion
  • Moral capital
  • Philanthropy

JEL Classification

  • G14
  • M14