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Journal of Business Ethics (2007) 72:229241 Springer 2006 DOI 10.1007/s10551-006-9167-5
The Effects of Firm Size and Industry on Corporate Giving
Louis H. Amato Christie H. Amato
ABSTRACT. Recent downward trends in corporate giving have renewed interest in the factors that shape corporate philanthropy. This paper examines the relationships between charitable contributions, firm size and industry. Improvements over previous studies include an IRS data base that covers a much broader range of firm sizes and industries as compared to previous studies and estimation using an instrumental variable technique that explicitly addresses potential simultaneity between charitable contributions and profitability. Important findings provide evidence of a cubic relationship between charitable giving and firm size and evidence of strong industry effects. The plus-minus-plus regression coefficient sign pattern for the cubic firm size model suggests that small and large firms give more relative to total receipts with lower giving ratios among medium size firms. One interpretation for this finding is that small firms are close to the communities they serve while high visibility creates a need for large firm philanthropy. Strong industry effects provide evidence of inter-industry differences in giving culture and/or different public relations requirements across industries.
KEY WORDS: charitable contributions, corporate philanthropy, rm size, industry effects, social responsibility
Introduction
Corporate giving as a percentage of prot declined over the past 15 years despite recent research suggesting that rms have nancial and strategic motives for socially responsible behavior. Porter and Kramer (2002) reported that corporate giving by U.S. companies declined 1.5% in real terms over the past 15 years, a 50% decline in giving as a percent of prot. Interestingly, this reduction in corporate giving coincides with evidence suggesting that a strong corporate social responsibility commitment attracts and retains customers. A survey by Maignan et al. (1999) found that 88% of consumers described themselves as more likely to buy from a socially responsible corporation, while 76% indicated a willingness to switch brands to support socially responsible rms.
Changes in corporate philanthropy may reect consumer preferences for broader community involvement by business in contrast to the cash donation dominated approach of the past. Hess et al. (2002) argued that long-term community involvement produces a more positive corporate image as compared to cash charitable contributions. In a survey of 1000 consumers,...