Corporate charitable foundations, executive entrenchment, and shareholder distributions

We show that firms with corporate charitable foundations increased shareholder distributions by less than one half as much as similar firms without foundations following the 2003 capital income tax cut, even after controlling for common explanatory factors such as executive shareholding. The findings are robust to alternative explanations and to common threats to causal identification. Further exploration reveals that our estimates capture a greater reluctance of foundation firms to initiate or rapidly increase shareholder payouts, but not a greater tendency to reduce or eliminate shareholder payouts. Additional analyses suggest managers direct funds that would have been paid out toward executive compensation and capital investment. In light of the fact that firms with foundations are more likely to exhibit a high degree of managerial entrenchment, we interpret these findings as evidence that foundations are both a sign of and vehicle for managerial self-dealing.