Generous charity to preserve green image? Exploring linkage between strategic donations and environmental misconduct

In this study, we identify two typical donation strategies, i.e., the fire-suppressing approach and the proactive approach, for window-dressing environmental misconduct. For a sample of 2582 small Chinese companies, we find that pollution fines are positively associated with corporate charitable donations, implying that firms use charitable donations as a fire-suppressing method to address the negative impact of environmental misconduct. We also found a positive relationship between pollutant emissions and corporate charitable donations, which supports the hypothesis that firms use a proactive approach (i.e., more consistent charitable donations) to reduce the negative impact of environmental misconduct. The relationship between pollution fines and corporate charitable donations is positively moderated by advertising expenses, suggesting that small and medium-size enterprises (SMEs) with higher branding expenses are more likely to take a fire-suppressing approach. Politically connected SMEs are more likely to take a proactive approach whereas SMEs without political connections are more likely to take a fire-suppressing approach.