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Paying by Donating: Corporate Donations Affiliated with Independent Directors
[Corporate political donations: Investment or agency?]

Author

Listed:
  • Ye Cai
  • Jin Xu
  • Jun Yang

Abstract

Corporate donations to charities affiliated with the board’s independent directors (affiliated donations) are large and mostly undetected due to lack of formal disclosure. Affiliated donations may impair independent directors’ monitoring incentives. CEO compensation is on average 9.4% higher at firms making affiliated donations than at other firms, and it is much higher when the compensation committee chair or a large fraction of compensation committee members are involved. We find suggestive evidence that CEOs are unlikely to be replaced for poor performance when firms donate to charities affiliated with a large fraction of the board or when they donate large amounts.

Suggested Citation

  • Ye Cai & Jin Xu & Jun Yang, 2021. "Paying by Donating: Corporate Donations Affiliated with Independent Directors [Corporate political donations: Investment or agency?]," The Review of Financial Studies, Society for Financial Studies, vol. 34(2), pages 618-660.
    • Handle: RePEc:oup:rfinst:v:34:y:2021:i:2:p:618-660.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa056
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    Citations

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    Cited by:

    1. Ing-Haw Cheng & Harrison Hong & Kelly Shue, 2023. "Do Managers Do Good with Other People’s Money?," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 12(3), pages 443-487.
    2. Du, Yao & Chan, Chia-Ying & Lin, Chih-Yung & Lu, Chien-Lin, 2023. "Charitable CEOs and employee protection," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    3. Seungho Choi & Raphael Jonghyeon & Simon Xu, 2023. "The Strategic Use of Corporate Philanthropy: Evidence from Bank Donations," Review of Finance, European Finance Association, vol. 27(5), pages 1883-1930.
    4. Wang, Shuangshi & Yan, Cheng & Zhao, Yuqian, 2024. "Technological peer pressure and corporate sustainability," Energy Economics, Elsevier, vol. 130(C).
    5. Li, Chengcheng & Wang, Xiaoqiong, 2022. "Local peer effects of corporate social responsibility," Journal of Corporate Finance, Elsevier, vol. 73(C).

    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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