Donating Money to Get Money: The Role of Corporate Philanthropy in Stakeholder Reactions to IPOs

Ming Jia · Zhe Zhang

62 citations0/0 files storedJournal of Management Studies

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Corporate Social Responsibility Reporting Corporate Finance and Governance Corporate Identity and Reputation

Abstract

Abstract This study examines how stakeholders' investment time horizons interact with information about corporate giving in initial public offering ( IPO ) firms. Specifically, we build a model that explains how corporate philanthropy affects IPO performance. We find that at the IPO ‐preparation stage, corporate giving is negatively related to underwriter prestige, venture capital investment, and IPO financing costs. We also find that at the IPO ‐issuance stage, negative media coverage of IPOs moderates the U ‐shaped relationship between corporate giving and market premiums. At the IPO ‐trading stage, we find that corporate giving only positively influences the market premiums for IPO firms that are the subject of negative media reports. Our findings contribute to the signalling theory by showing how various stakeholders interpret the same signals differently, and they have implications for understanding how the relationship between corporate philanthropy and corporate financial performance materializes in the IPO markets.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1995Managing Legitimacy: Strategic and Institutional Approaches 2007The Social Responsibility of Business Is to Increase Its Profits 1968Weighted kappa: Nominal scale agreement provision for scaled disagreement or partial credit.2010Signaling Theory: A Review and Assessment 2003Misery Loves Companies: Rethinking Social Initiatives by Business 2007Giving Content to Investor Sentiment: The Role of Media in the Stock Market 2007All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors

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