Reaching through the fog: Institutional environment and cross-border giving of corporate foundations

Research Summary: Corporate philanthropy has long been recognized as an important part of multinational strategy, yet we know relatively little how charitable giving is allocated across countries. Using a sample of 208 U.S.-based corporate foundations from 1993 to 2008, we find that the foundations give more in countries with opaque institutional environments, but they do so through international intermediaries. They also give more when the funding firms have new entries in countries with weak institutions—hence greater needs for the social license to operate—or when their operations require stronger connections with local suppliers or customers. These findings point to the use of corporate philanthropy as part of corporate diplomacy when the local institutions are ineffective and the importance of reaching out to local constituents is high. Managerial Summary: Corporate foundations play an important role in firms' charitable giving across countries. This article analyzes how foundation giving is associated with the funding firm's need to navigate the local business environments. Using a sample of 208 U.S.-based corporate foundations from 1993 to 2008, we find that foundations give more in countries characterized by weak rule of law and high levels of corruption, and when the funding firms have newly established subsidiaries or stronger need to connect with local stakeholders there. However, donations to countries with weak institutions are more likely to go through international intermediaries to avoid potential liabilities. The results are consistent with the view that corporate foundations support corporate diplomacy and help obtain the social license to operate in the host countries.