Corporate Giving Decision: Agency Problem Hypothesis vs. Shareholder Wealth Maximization Hypothesis
2020
We examine the determinants and consequences of corporate giving decisions by agency
theory, corporate governance mechanisms, and shareholder wealth maximization. The results
show that firms with more serious agency problems are more likely to engage in persistent
corporate giving, while firms engaged in maximizing shareholder profits are more likely to
engage in one-off corporate giving. Moreover, as corporate giving increases, shareholders
reduce their valuation of firm cash holdings, and investors respond negatively to corporate
giving. Using subsamples, institutional settings are examined to explore the differences in
giving decisions between family businesses and professional managers.
Key words: Corporate giving decision, agency problem, corporate governance, shareholder
wealth maximization
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