The Research On Market Reaction To Charity Donations By Enterprises

Listed companies were proved to be proactive donors in the relief work of Wenchuan Earthquake. Some studies showed there were strong economic incentives behind corporate donations, and that such philanthropic behavior would benefit the firms. Yet it's not known whether investors see it in the same way. Using event study methodology, we investigate stock market reactions to donations by A-share firms to answer questions as such: How would the market react? What factors affected the market reaction?The review on the model of Corporate Social Responsibilities(CSR) showed that: The reaction of market to corporate social responsibility will depend on the amount of responsibility investors,the amount of donation,the time of donation and the way of donation.And when these four factors change, the market reaction will also change.Through event study we find that the market reactions are significantly positive in response to donation announcements. Contrast test shows that higher Cumulative Abnormal Returns(CAR) were associated to firms that had the following attributes: the cooperation with some NGO; relatively larger donation amount; fast donation announcements. However, firms with in-kind donations and partner donations tend to have higher CAR.Our studies first prove that philanthropic donations would invoke negative market reactions and then point out factors affecting the reaction. Such results could be considered a satisfying addition to the research of corporate philanthropic behavior.