The dark side of individual blockholder philanthropy |
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Authors: | Thomas D. Shohfi Roger M. White |
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Affiliation: | 1. Department of Finance and Accounting, Lally School of Management, Rensselaer Polytechnic Institute, Troy, New York;2. W.P. Carey School of Business, Arizona State University, Tempe, Arizona |
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Abstract: | We examine the market reaction to charitable pledges by individual blockholders of public firms. As this philanthropy may signal a weakening preference for wealth maximization and may be indicative of distraction or relaxed monitoring, these agency costs may overwhelm any reputation benefits. We find decreased firm value and lower pay-for-performance sensitivity, the effects of which are most severe where monitoring needs are high, the blockholder is a director, or when the firm has ex ante high corporate social responsibility ratings. Our results are robust to controlling for prior charitable foundation involvement, busy director–blockholders, dual-class share structures, blockholder exit, and pre-pledge firm sentiment. |
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