A Study Of The Relationship Between Corporate Philanthropy And Firm Financial Performance

Corporate philanthropy,as a crucial tool used by firms to meet the social requirement and practice social assistance,has received extensive attention from all circles of society in recent years.However,will rational firms which aim at profit maximization be rewarded by doing philanthropy?It becomes the focus of discussion in corporate social responsibility research field.Currently there still exists much disagreement on the relationship between corporate philanthropy and corporate financial performance.How does corporate philanthropy influence corporate financial performance?Why is there great uncertainty in the results of empirical research on their relationship?And how to explain the phenomenon that firms do philanthropy in the same way but receive different economic outcomes?In order to answer these questions,taking advantage of contingency management thinking and based on the stakeholder perception view,this study deeply explores the internal mechanism of how corporate philanthropy affects a firm's financial performance.By analyzing and developing the "philanthropic motivation-consequence”theory,we argue that stakeholder perception factor should be involved in corporate philanthropy-corporate financial performance relationship research.Because the strategic value of corporate philanthropy lies in stakeholder relationship,to which extent can corporate philanthropy promote corporate financial performance relies on how stakeholders identify its philanthropic motivation.Particularly,a firm's situation of lower level CSR behaviors and expression of long-term orientation construct the trigger points of stakeholder perception and evaluation.The inconsistency of behavior and expression in relevant aspects might cause stakeholders' suspicion of the firm's motivational sincerity in doing corporate philanthropy,thus damaging its strategic effectiveness,and could even bring negative effect on corporate financial performance.Furthermore,stakeholders have to know about a firm and its information to form the perception and make meaningful judgment.Thus,firm visibility should serve as a boundary condition in the above influence mechanism.To examine our analysis logic,this study carries out empirical research using large panel data on Chinese A-share listed firms throughout the years from 2007 to 2012,drawing several findings and conclusions as follows:Firstly,main effect result shows that on the whole corporate philanthropy can increase corporate financial performance by improving or protecting stakeholder relationship,and helping a firm obtain new resources or reduce the risk of losing critical resources it already controls.Secondly,and more importantly,how stakeholder entities perceive a firm's philanthropic motivation has critical influence on the strategic effectiveness of the firm's corporate philanthropy.When stakeholders observe a firm's other aspects to recognize its real philanthropic motivation,the situation of its lower level CSR and long-term orientation expression will become certain reference targets stakeholders look for and important clues for stakeholders to make the judgment.If a firm donates a lot with poor fulfillment of its lower level CSR or poor long-term expression in other dimensions,this kind of inconsistency is likely to lead stakeholders to interpret its corporate philanthropy as a hypocritical behavior or vehicle for speculation thus damaging the strategic effectiveness of corporate philanthropy.Specifically,the levels of dividend payment(economic responsibility),tax compliance(legal responsibility)and supplier respection(ethical responsibility)are used as three proxies for a firm's lower level CSR,and institutional ownership and R&D spending are used as proxies of a firm's long-term orientation expression.Results show that all these variables significantly and positively moderate the relationship between corporate philanthropy and corporate financial performance such that the positive relationship increases with its level of dividend payment,tax compliance,supplier respection,institutional ownership and R&D spending increases,otherwise,the positive relationship will be weaken or even turn to negative.Thirdly,the moderating effects of lower level CSR and long-term orientation expression might differ among firms with different visibility characteristics.The three-way interaction results show that firm visibility further moderates the moderating effect of supplier respection and R&D spending such that as a firm's visibility increases,the positive moderating effects of supplier respection and R&D spending on the relationship between corporate philanthropy and corporate financial performance will be stronger.This result indicates that to some extent,stakeholder perception is more important for firms with high visibility due to more attention they receive.The main contribution in this study embodies in both theoretical and practical aspects:On the one hand,we have responded to the calls by some scholars for considering the reaction of stakeholder entities in corporate social responsibility research.This study analyzes and examines the relatively complex internal mechanism of how corporate philanthropy influence corporate financial performance,enriching the literature on corporate philanthropy's economic consequences,enlarging the scope of past contingency research helping deepen the understanding of corporate philanthropy's different economic effects in various firms,providing a new way of thinking for reconciling the conceptual controversy and empirical inconclusive ness on the relationship between corporate philanthropy and corporate financial performance.Meanwhile,we propose that stakeholders form their perception and identity on a firm's philanthropic motivation by investigating the consistency in its behaviors and expressions,clarifying under which condition stakeholders regard a firm's corporate philanthropy as a sincere or hypocritical behavior.By introducing firm visibility as the important boundary condition to stakeholder perception,this study becomes more comprehensive and insightful.On the other hand,our conclusions have practical implications as well.Firstly,it is generally helpful for managers to commit firm resources to corporate philanthropy which can not only promote the sustainable development of the firm itself,but also enhance the social welfare.Besides,it is necessary for firms to value stakeholders'perception and reaction.The strategic effectiveness of corporate philanthropy is largely limited by stakeholders' recognition of its motivation Managers should fully realize that firms' other behaviors and expressions,such as lower level CSR behaviors and long-term orientation expressions,are likely to become the criteria for stakeholders to form perception and make judgment.This suggests that firms should seriously fulfill the lower level CSR and endeavor to display long-term orientation,in order to avoid falling into the trap of hypocrisy or speculation.Lastly,a firm with high visibility should care more about its consistency in behaviors and expressions due to more attention it may receive from stakeholders.Managers whose firms are already doing well in keeping the consistency can use advertising to reinforce firm visibility,and make stakeholders more aware of the firms' endeavors and contributions,so that the strategic effectiveness of corporate philanthropy can be better exerted.