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This study investigates financial correlates of corporate philanthropy in Fortune 1000 companies using structural equation modeling. The results suggest that cash flow (one of the most discretionary types of organizational slack) has a significant impact on a firm's cash donations to charitable causes, but monetary donations do not affect firm financial performance. These findings support the accepted view of corporate philanthropy as a discretionary social responsibility and the traditional thinking about firm giving in the business and society literature-that doing well enables doing good. Contrary to some contemporary thinking, the findings imply no significant effect on profits from corporate generosity.
Keywords: corporate philanthropy; financial performance; cash flow; organizational slack
Thousands of businesses jointly donate billions of dollars each year to charitable causes such as education, arts and culture, human services, community improvement, medicine, science, environmental protection, and others. Yet, the proportion of aggregate profits given to philanthropic causes ebbs and flows over time. During the 1990s, whereas profits soared, corporate philanthropy fell from rates well over 2% of pretax profits to levels between 1% and 1.5% (Aldrich, 2000; American Association of Fundraising Counsel, 2002; Hunt, 2000; Langley, 1999). Because of the considerable variation in giving among firms, researchers have tried to identify the factors that determine how much a firm gives. For example, prior studies have investigated CEO attributes (e.g., Atkinson & Galaskiewicz, 1988; Buchholtz, Amason, & Rutherford, 1999; Galaskiewicz, 1997), firm size (e.g., Adams & Hardwick, 1998; Boatsman & Gupta, 1996), corporate governance (e.g., Bartkus, Morris, & Seifert, 2002; Wang & Coffey, 1992), and industry effects (e.g., Navarro, 1988; Useem, 1988), among other possible predictors. This study investigates key financial correlates of corporate philanthropy at the firm level. Specifically, we examined the relationship between having and giving (i.e., is corporate philanthropy dependent on the availability of slack resources) as well as the relationship between giving and getting (i.e., does corporate philanthropy have an impact on the profitability of the firm). We believe these questions are conceptually interrelated, and we examine them simultaneously using structural equation modeling. Because firm size has been such a dominant predictor of both corporate philanthropy and firm financial performance, we carefully controlled for firm size in our models.
Corporate philanthropy has long been regarded as a corporate social responsibility...