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Does corporate philanthropy provide insurance value? Evidence from the securities law revision in China

Author

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  • Liu, Yijun
  • Nguyen, Trung
  • Xu, Rong
  • Lien, Donald

Abstract

This study investigates the ex-ante insurance value of corporate philanthropy on firm valuation by exploiting an exogenous increase in firms' future litigation risk due to the adoption of class-action lawsuits in the 2019 Securities Law revision. Analyzing a sample of Chinese listed firms constructed from the propensity score matching approach, we find that the commitment to corporate philanthropy exerts ex-ante insurance-like effects. In addition, firms with a history of being a defendant in a lawsuit or greater litigation-related expenses realize more benefits from CP investments. The empirical findings are robust to additional sensitivity checks and offer important implications regarding the use of corporate donations as a risk management tool.

Suggested Citation

  • Liu, Yijun & Nguyen, Trung & Xu, Rong & Lien, Donald, 2025. "Does corporate philanthropy provide insurance value? Evidence from the securities law revision in China," Pacific-Basin Finance Journal, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:pacfin:v:91:y:2025:i:c:s0927538x25000691
    DOI: 10.1016/j.pacfin.2025.102732
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    More about this item

    Keywords

    Corporate philanthropy; Securities law revision; Insurance-like effects; Event study method; Litigation risk;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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