Paper Title
Location
University of Washington Tacoma, Philip Hall
Event Website
http://www.tacoma.uw.edu/clsr/academic-conference
Start Date
11-7-2013 3:00 PM
End Date
11-7-2013 4:30 PM
Description
Recent experimental CSR research suggests that principal philanthropy offers benefits to the firm. I test this finding using archival data in a natural experiment. In publically traded firms, I find that charitable pledges by blockholders create agency problems that overwhelm any benefits and destroy shareholder value. This effect is stronger when the blockholder has, beyond his economic incentives, a fiduciary duty (as a director or fund manager) to monitor the firm and its managers. I attribute these findings to small investors relying on the self-interest of major shareholders to monitor managers and other investors. A charitable pledge lessens the market’s expectation of the philanthropic blockholder’s self-interest, which reduces the ability of minor shareholders to rely on him (and his preference for wealth-maximization) to monitor the firm.
Greed Is Good
University of Washington Tacoma, Philip Hall
Recent experimental CSR research suggests that principal philanthropy offers benefits to the firm. I test this finding using archival data in a natural experiment. In publically traded firms, I find that charitable pledges by blockholders create agency problems that overwhelm any benefits and destroy shareholder value. This effect is stronger when the blockholder has, beyond his economic incentives, a fiduciary duty (as a director or fund manager) to monitor the firm and its managers. I attribute these findings to small investors relying on the self-interest of major shareholders to monitor managers and other investors. A charitable pledge lessens the market’s expectation of the philanthropic blockholder’s self-interest, which reduces the ability of minor shareholders to rely on him (and his preference for wealth-maximization) to monitor the firm.
https://digitalcommons.tacoma.uw.edu/clsr_academic/2013/pres/3
Comments
Roger White is a PhD Candidate at the Robinson College of Business