The Effect Of Charitable Donations On Corporate Financial Performance

With the development of society and economic, Chinese philanthropy industry is also at the fast track of development. The development of philanthropy adapts to the requirements of the third distribution of income. At present, the gap between rich and poor is large, but the social security system is not adequate. Therefore, Charitable donations is a tonic which is considered as an important positive factor that can promote the development of the harmonious socialist society sustainably in China.As a cell of the market-oriented economic regime, companies play an important role in the long history of the cause in the field of charitable donations. Corporate charitable giving, an effective way to fulfill their social responsibilities, has been increasingly concerned. And the attention of corporate charitable giving was highly enhanced because of the event "5.12Earthquake", which happened in2008.But some people question that corporate charitable giving ran counter to the financial goals of maximizing shareholder wealth. Corporate charitable giving would occupy the resources that are used to support the corporate operation, which harms the interests of the shareholders.However, in accordance with resource dependency theory, the competence of companies to survive depends on its ability to obtain the critical resources from external environment. The reason is that companies cannot completely achieve self-sufficiency of resources. Moreover, critical resources is not only bound by the explicit contract, but more with informal agreements which contain social norms, customs, commitments and beliefs. Then, except the stakeholder of shareholders, corporate.sustainable development needs the supports of stakeholders, such as customers, communities, human resources and other stakeholders.So companies participate in social exchange for "moral basis", the basis for existence and development, by charitable donations.In fact, the conclusion of empirical study in the field of the effect of charitable donations on corporate financial performance is inconsistent. Some scholars studied out to be positive, Some scholars studied out to be negative. Of course some scholars studied out to be irrelevant. Therefore, our paper is to study that whether corporate charitable giving can really bring financial performance growth against this background.Based on the2004-2010sample data of Chinese listed companies, our empirical test concludes that the effect of charitable donations on corporate financial performance is actively positive. In order to alleviate the problem of endogenous, the financial performance in previous years is controlled, and we also find that our conclusion is still true. Then, We conduct a series of robustness tests. Our robustness tests are made up of three parts. Firstly, we change different index that measure the degree of corporate charitable donations. Secondly, we choose ROE, instead of ROA, as the index of financial performance. Finally, the annual differences are controlled, and we just consider the sample from2004-2007. There are two reasons to control the annual differences. On the one hand, due to the far-reaching impact of financial crisis that happened in2008, corporate financial performance may have large fluctuations in2008and beyond. On the other hand, our country has had undergone a very serious natural disasters in2008, corporate charitable donations may beyond their donation program in the normal circumstances. There are a number of listed companies announce the information of charitable donations temporarily. The effect of charitable donations on corporate financial performance may mix the effect of previous charitable donations. Through the three parts of robustness tests, our conclusions is almost the true.At the end of the study, we summarize two major suggestions on system of corporate charitable donations and policy in legislation. The former one contains five aspects in corporate charitable donations, such as strategic philanthropy program, decision-making in charitable donations, the source of the donated funds, information disclosure in charitable donations, performance evaluation in charitable donations. The latter is mainly in tax incentives. The main contribution of this paper are listed as follows:(1) The contribution of the angular variationMany scholars, in the past, study the effect of the charitable donations on corporate financial performance based on the effect of current charitable donations on current corporate financial performance. Our study considers the effect of the charitable donations which happened in previous period on current corporate financial performance.(2) The contribution of sample collectionOur study uses a large and recent sample data to examine the effect of the charitable donations on corporate financial performance. So our study enriches the empirical evidence in the field.(3) The contribution of theoretical analyzingIn the past, the theory that the study, the effect of the charitable donations on corporate financial performance, based on is relatively simple. In our study, we analyze the effect of the charitable donations on corporate financial performance by social contract theory, stakeholder theory, social exchange theory, resource dependence theory. Moreover, we also analyze the effect of the charitable donations on corporate financial performance by combining these theories.