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Do markets love misery? Stock prices and corporate philanthropic disaster response

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  • Muller, Alan
  • Kräussl, Roman

Abstract

While 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.

Suggested Citation

  • Muller, Alan & Kräussl, Roman, 2007. "Do markets love misery? Stock prices and corporate philanthropic disaster response," CFS Working Paper Series 2008/10, Center for Financial Studies (CFS).
  • Handle: RePEc:zbw:cfswop:200810
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    References listed on IDEAS

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    1. Jonathan P. Doh & Terrence R. Guay, 2006. "Corporate Social Responsibility, Public Policy, and NGO Activism in Europe and the United States: An Institutional-Stakeholder Perspective," Journal of Management Studies, Wiley Blackwell, vol. 43(1), pages 47-73, January.
    2. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    3. Willard T. Carleton & James M. Nelson & Michael S. Weisbach, 1998. "The Influence of Institutions on Corporate Governance through Private Negotiations: Evidence from TIAA-CREF," Journal of Finance, American Finance Association, vol. 53(4), pages 1335-1362, August.
    4. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    5. Robert D. Klassen & Curtis P. McLaughlin, 1996. "The Impact of Environmental Management on Firm Performance," Management Science, INFORMS, vol. 42(8), pages 1199-1214, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Corporate Philanthropy; Disasters; Event Study; Market Value; Hurricane Katrina;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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