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

  • 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.

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Author:Alan Muller, Roman KräusslORCiDGND
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2008,10
Series (Serial Number):CFS working paper series (2008, 10)
Document Type:Working Paper
Year of Completion:2008
Year of first Publication:2008
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2008/04/11
Tag:Corporate Philanthropy; Disasters; Event Study; Hurricane Katrina; Market Value
GND Keyword:USA; Katrina; Hurrikan; Spende; Unternehmensbewertung; Börsenkurs
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht