The Dark Side of Individual Blockholder Philanthropy

Financial Management, Vol. 49, No. 3, pp. 741-767, 2020

54 Pages Posted: 27 Nov 2016 Last revised: 8 Sep 2020

See all articles by Thomas Shohfi

Thomas Shohfi

Rensselaer Polytechnic Institute (RPI) - Department of Finance and Accounting

Roger M. White

Arizona State University (ASU) - School of Accountancy

Date Written: July 1, 2019

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 maybe 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 CSR 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.

Keywords: Corporate social responsibility, agency theory, philanthropy, blockholder, monitoring

JEL Classification: G32, G34, G14, D23, D64, G02, M12, M14

Suggested Citation

Shohfi, Thomas and White, Roger M., The Dark Side of Individual Blockholder Philanthropy (July 1, 2019). Financial Management, Vol. 49, No. 3, pp. 741-767, 2020, Available at SSRN: https://ssrn.com/abstract=2874060 or http://dx.doi.org/10.2139/ssrn.2874060

Thomas Shohfi

Rensselaer Polytechnic Institute (RPI) - Department of Finance and Accounting ( email )

Pittsburgh Building
110 8th street
Troy, NY 12180
United States

HOME PAGE: http://shohfi.com/

Roger M. White (Contact Author)

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

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