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Giving a little to many or a lot to a few? The returns to variety in corporate philanthropy
Author(s) -
Seo Haram,
Luo Jiao,
Kaul Aseem
Publication year - 2021
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.3309
Subject(s) - scrutiny , variety (cybernetics) , shareholder , multinational corporation , profitability index , business , moral hazard , economics , marketing , market economy , incentive , finance , corporate governance , law , political science , artificial intelligence , computer science
Research Summary We examine the returns to specialization versus variety in corporate philanthropy. Acknowledging the theoretical rationale for both a specialist and a generalist approach to philanthropy, we took a question‐driven, abductive approach, and found a robust positive association between philanthropic variety and firm profitability for donations by large US public corporations from 2003 to 2011. This association held for variety across causes but not within causes, for nonlocal giving and for giving by diversified firms, and was weaker for firms whose donations faced greater scrutiny. These findings are consistent with a moral hazard explanation whereby firms take advantage of the relatively inelastic support for philanthropy within a cause area by strategically spreading their donations across a wide range of supporter interests, thus maximizing profits. Managerial Summary Do firms earn higher profits if they spread their philanthropic donations across many different causes, or if they concentrate them among a few? Examining donations by large US public corporations we found that firms earned higher returns when they gave to many different causes, holding the total amount of donations constant; that this relationship was primarily true for nonlocal giving and giving by multinational and multi‐business firms, and was weaker for firms under shareholder scrutiny or those that gave inconsistently over time. Our best explanation for these results is that supporters of corporate philanthropy care more about whether a firm gives to a cause than how much it gives, making it optimal for firms to give minimal amounts to a large variety of causes.