Do markets love misery? Stock prices and corporate philanthropic disaster response
AbstractWhile companies have emerged as very proactive donors in the wake of recent major disasters like Hurricane Katrina, it remains unclear whether that corporate generosity generates benefits to firms themselves. The literature on strategic philanthropy suggests that such philanthropic behavior may be valuable because it can generate direct and indirect benefits to the firm, yet it is not known whether investors interpret donations in this way. We develop hypotheses linking the strategic character of donations to positive abnormal returns. Using event study methodology, we investigate stock market reactions to corporate donation announcements by 108 US firms made in response to Hurricane Katrina. We then use regression analysis to examine if our hypothesized predictors are associated with positive abnormal returns. Our results show that overall, corporate donations were linked to neither positive nor negative abnormal returns. We do, however, see that a number of factors moderate the relationship between donation announcements and abnormal stock returns. Implications for theory and practice are discussed. --
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Bibliographic InfoPaper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2008/10.
Date of creation: 2007
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Corporate Philanthropy; Disasters; Event Study; Market Value; Hurricane Katrina;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
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