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The Effect Of Wenchuan Earthquake On Industries And Corporate Philanthropy Behavior

Posted on:2011-12-28Degree:DoctorType:Dissertation
Country:ChinaCandidate:H B ShuFull Text:PDF
GTID:1226360305966596Subject:Financial engineering
Abstract/Summary:PDF Full Text Request
Based on the setting of Wenchuan earthquake at 12 May 2008, this thesis study two focuses of intense practical and academic research and policy debate evaluating the effect of natural disaster on industries and corporate philanthropic donation behavior.Evaluating the corresponding loss and effect on industries caused by natural disaster is always the focus of investors and governments because of lots of relief and rebuilding work to do after natural disaster, but current models are mostly on the basis of general equilibrium analysis framework. Normally, these kinds of models need lots of information ranging from industry structure to market shares in disaster regions, which make themselves are hardly doable because these comprehensive information are very difficult to collect in short time. Therefore, it is necessary to develop new methods to allow us to rapidly evaluate the loss and the effect on industries of natural disaster. It’s sort of urgent given there are lots of earthquake, hurricane and other kinds of natural disasters happened recently. Combine stock market trading data and multivariate regression model (MVRM), we offer a new angle to evaluate the impact of Wenchuan earthquake on industries. This method can evaluate the impact quickly and accurately than existing models since the stock price incorporates all related information that affect firm’s value. The most important is that the effect of earthquake is the only new information that would affect stock price in a short period. Our results indicate construction and building material industry acquires the biggest positive benefit from earthquake among all industries, while financial services industry is suffered worst.Corporate donations are discretionary expenses that are not necessary for a firm’s operation. The incentive underlying such expense has naturally become a focus of intense academic investigation and policy debate. Two conflicting perspectives on its nature have been proposed: value-enhancing persperctive and value-reducing perspective. The discussions and empirical investigations on this topic have hitherto focused almost exclusively on private firms in mature market economies such as the United States and the United Kingdom. Little evidence is available on charitable donations by firms in emerging markets, especially in China. Domestic scholars mostly focus on introducing foreign associated literature. Given the institutional arrangements of emerging market are vastly different from those of developed markets, it very necessary to study firms’philanthropic donation behavior in developing countries.Based on the natural experiment of the 2008 Sichuan earthquake and a sample of China’s listed firms and Heckman two-step model, this thesis firstly systematically examine the role of three remarkable differences between developed and developing market: legal, controlling shareholder agency problem and political connections in firms’philanthropic donation behavior. In addition, we also study the effect of consumer’s perception on firms’philanthropic donation behavior. Therefore, our study not only can help us to systematically understand the incentive of these donations, but also can help government to make related policy. Another potential contribution of this study is to help us to under the firms’ philanthropic donation behavior in emergying market. Additionally, using the date of donation announcement, we firstly introduce the survival analysis model into this research field to analyze the donation timing decision. Our results suggest legal, controlling shareholder agency problem and political connection are all significant affect firms’philanthropic donation behavior. Meanwhile, we also find value-enhancing incentive in those donations.Because both value-enhancing and value-reducing persperctive have not taken the cost and benefit of donation into account, we can not tell the net effect of those donations on firms’value. There are few studies examine the effect of firms’ philanthropic donation on their value, and normally they only analyze the effect of donation on accounting performance measures. The accounting performance measures may not fully capture the effects of corporate donation, particularly given that the reputation effects created by donations usually last for many years. Under the assumption of effective market, stock price reflects the discount of all future firms’ cash flow, market performance thus include all effects of corporation donation. To be robustness, this thesis employs several methods to measure the market performance of corporate donation, and also examine and analyze short-run and long-run market performance. Our results indicate that donations to the Sichuan earthquake tended to be value-reducing. Meanwhile, the earlier donors and the larger donors are associated with better excess stock return.Overall, firstly, this thesis provides a new angle to evaluate the effect of earthquake on industries using MVRM model and stock trading data. Secondly, our systematic analysis of firms’philanthropy donation behavior can not only help us to fully understand the incentive of these donations, but also help government to make related policy. At the same time, this study may help us to under the firms’ philanthropic donation behavior in emergying market. Last but not the least important, our examination of net effect of those donation on firms’value can guide firms’ decision makers on donation in the future.This thesis comprises seven chapters and is organized as follows. The 1st chapter provides an introduction of this thesis, such as research background and main innovation. The 2nd chapter reviews related literature and institution background. The data description and variables definition are provided in the 3rd chapter. The evaluation of effect of earthquake on industries is presented in 4th chapter. The 5th chapter systematically reports the empirical results on donation participation decision, donation decision and donation timing decision. The 6th chapter examines and analyzes the market reaction to donation. Conclusions are given in the final chapter of the thesis.
Keywords/Search Tags:Wenchuan earthquake, disaster evaluation, philanthropic donation, market reaction, MVRM model, Heckman model, Cox Proportional Hazard Model, propensity score matching
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