The Impact of Investing in Philanthropic Activities on the Firm's Cost of Equity

Subject Areas :

مهدی صفری گرایلی ¹ , یاسر رضائی پیته نوئی ²

1 - گروه حسابداری، واحد بندرگز، دانشگاه آزاد اسلامی، بندرگز، ایران
2 - استادیار گروه مدیریت، دانشکدۀ ادبیات و علوم انسانی، دانشگاه گیلان، رشت، ایران.

Received: 2021-07-02 Accepted : 2021-09-06 Published : 2021-11-15

Keywords: Cost of Equity Capital, Social Responsibility, Keywords: Philanthropic Activities,

Abstract :

Nowadays, investing in philanthropic activities as a part of social responsibility has become more and more important, as it is expected to have important implications for corporate strategic planning and business risk. Therefore, the present study investigates the impact of philanthropic activities on corporate cost of equity. For this purpose, firm’s donations to charitable and beneficial organizations are used to measure philanthropic activities, as well as OSM and capital asset pricing model were employed to measure the cost of equity. The research hypothesis was also investigated using a sample of 63 companies listed in Tehran Stock Exchange by using multi-variable regression model based on panel data technique and Eviews econometric software. The results showed that investing in philanthropic activities reduces the cost of equity capital. Also, the results of the sensitivity analysis test indicate that the use of alternative measure for cost of equity capital has no effect on the main results of the study and our results are robust. The findings of this study not only fill the gap in the field, but also help managers, investoes and capital market regulators make informed decisions.

References:

• اعتمادی، حسین و مهدی ابراهیمی میمند، (1391)، "پیش‌بینی هزینه حقوق صاحبان سهام با استفاده از تحلیل خوشه‌ای"، مطالعات تجربی حسابداری مالی،10(33)، صص 118- 97.


• اقدامی، الهام و بهمن بنی مهد، (1398)، "تأثیر استراتژی رهبری و تمایز محصول بر هزینه حقوق صاحبان سهام"، حسابداری مدیریت، 12(43)، صص 153-165.


• بنی مهد، بهمن، احمد یعقوب نژاد و الهام وحیدی کیا، (1394)، "توان رقابتی محصول و هزینه حقوق صاحبان سهام"، پژوهش‌های حسابداری مالی و حسابرسی، 7(26)، صص 107-118.


• تقی‌زاده خانقاه، وحید و یونس بادآور نهندی، (1398)، "فعالیت‌های بشردوستانه و نوآوری شرکت‌ها در شرایط نامتقارنی اطلاعات"، حسابداری سلامت، 1 (21)، صص 105- 89.


• ثقفی، علی و قاسم بولو، (1388)، "هزینه حقوق صاحبان سهام و ویژگی‌های کیفی سود"، تحقیقات حسابداری، 2، صص 29-4.


• ثقفی، علی، علی رحمانی و مجید معتمدی فاضل، (1389)، "هزینه حقوق صاحبان سهام و متغیرهای حسابداری محرک ریسک"، دانش حسابداری، 1(2)، صص 32-9.


• حاجیها، زهره و ندا سبحانی، (1392)، "بررسی تأثیر کیفیت حسابرسی بر هزینه سرمایه شرکت‏های پذیرفته شده بورس اوراق بهادار تهران"، دانش حسابداری، 4(14)، صص 146-129.


• حاجیها، زهره و بهمن سرفراز، (1393)، "بررسی رابطه بین مسئولیت‌پذیری اجتماعی شرکت‌ها و هزینه حقوق صاحبان سهام در شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران"، پژوهش‌های تجربی حسابداری، 4 (2)، صص 123- 105.


• حجازی، رضوان، سیدکمال خاتمی، علیرضا ابوالحسنی طرقی و محسن ابراهیمی، (1399)، "رابطه بین سقوط قیمت سهام و سهامداران نهادی پایدار و گذرا"،پژوهش‌های حسابداری مالی و حسابرسی، 12(45)، صص 81-102.


• دولو، مریم و امیر ونکی، (1397)، "انحراف اهرم مالی از اهرم هدف و هزینه حقوق صاحبان سهام"، دانش حسابداری مالی، 5(3)، صص 153-181.


• رحمانی، علی و فرهاد فلاح‌نژاد، (1389)، "تأثیر کیفیت اقلام تعهدی بر هزینه سرمایه سهام عادی"، پژوهش‌های حسابداری مالی، 2(3)، صص 30-17.


• کرمی، غلامرضا و امید آخوندی، (1395)، "چرخه عمر شرکت و هزینه حقوق صاحبان سهام شرکت‌ها"، مطالعات تجربی حسابداری مالی، 13(52).


• محسنی، عبدالرضا، (1397)، "ارتباطات سیاسی و هزینه سرمایه حقوق صاحبان سهام در شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران"،مهندسی مالی و مدیریت اوراق بهادار، 9(34)، صص 273-291.


• محمدزاده سالطه، حیدر، عیسی ابیضی و مهدی محبعلی پور، (1399)، "تأثیر سرمایه اجتماعی بر هزینه سرمایه با تأکید بر عدم تقارن اطلاعاتی"، پژوهش‌هایحسابداری مالی و حسابرسی، 12(46)، صص 203-232.


• Ashbaugh-Skaife, H., Collins, D. W., & LaFond, R, (2006), “The Effects of Corporate Governance on Firms’ Credit Ratings”, Journal of Accounting and Economics, 42, PP. 203–243.


• Athanasakou, V., Eugster, F., Schleicher, T., & Walker, M, (2020), “Annual Report Narratives and the Cost of Equity Capital: U.K. Evidence of a U-Shaped Relation”, European Accounting Review, 29(1), PP. 27-54.


• F. L., & Hsu. P. H, (2016), “Corporate Philanthropy and Innovation: The Case of the Pharmaceutical Industry”, Journal of Applied Corporate Finance, 28(2), PP. 80-86.


• Boatsman, J., & Gupta, S, (1996), “Taxes and Corporate Charity: Empirical Evidence from Micro-Level Panel Data”, National Tax Journal, 49, PP.193-213.


• Brown, W. O., Helland, E., & Smith, J, K, (2006), “Corporate Philanthropic Practices”, Journal of Corporate Finance, 12, PP. 855–877.


• Carroll, A, (1991), “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders”, Business Horizons, 34(4), PP. 39-48.


• Chen, J., Dong, W., Tong, J. Y., & Zhang, F. F, (2018), “Corporate Philanthropy and Investment Efficiency: Empirical Evidence from China”, Pacific-Basin Finance Journal, 51, PP. 392-409.


• El Ghoul, S., Guedhami, O., Kwok, C. C. Y., & Mishra, D. R, (2011), “Does Corporate Social Responsibility Affect the Cost of Capital?”, Journal of Banking & Finance, 35(9), PP. 2388–2406.


• Fombrun, C. J., Gardberg, N. A. & Barnett, M.L, (2000), “Opportunity Platforms and Safety Nets: Corporate Citizenship and Reputational Risk”, Business and Society Review, 105(1), PP. 85–106.


• Fombrun, C., & Shanley, M, (1990), “What’s in a Name? Reputation Building and Corporate Strategy”, The Academy of Management Journal, 33(2), PP. 233–258.


• Friedman, M, (1970), “The Social Responsibility of Business Is to Increase Its Profits”, The New York Times Magazine.


• Galaskiewicz, J, (1997), “An Urban Grants Economy Revisited: Corporate Charitable Contributions in the Twin Cities”, Administrative Science Quarterly, 42(3), PP. 445–471.


• Godfrey, P, (2005), “The Relationship between Corporate Philanthropy and Shareholder Wealth: A Risk Management Perspective”, Academy of Management Review, 30, PP. 777–798.


• Gordon, T., & Khumawala, S, (1999), “The Demand for Nonprofit Financial Statements: A Model for Individual Giving”, Journal of Accounting Literature, 18, PP. 31-56.


• Haley, U. C. V, (1991), “Corporate Contributions as Managerial Masques: Reframing Corporate Contributions as Strategies to Influence Society”, Journal of Management Studies, 28(5), PP. 465–509.


• Hsieh, T. Y., Shiu, Y. M., Chang, A, (2019), “Does Institutional Ownership Affect the Relationship between Accounting Quality and Cost of Capital? A Panel Smooth Transition Regression Approach”, Asia Pacific Management Review, 24(4), PP. 327-334.


• Iatridis, G. E, (2015), “Corporate Philanthropy in the US Stock Market: Evidence on Corporate Governance, Value Relevance and Earnings Manipulation”, International Review of Financial Analysis, 13, PP. 113-126.


• Jensen, M.C., & Meckling, W. H, (1976), “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure”, Journal of Financial Economics, 3, PP. 305–360.


• Jiang, Sh.; Mi, J.; Tao, X.; and W. HU, (2018), “Corporate Philanthropy and Innovation Performance”, International Journal of Business and Management, 13(4), PP. 173-182.


• Judd, J., & Lusch, S. J, (2018), “Corporate Philanthropy and the Cost of Equity Capital. Available at SSRN: https://ssrn.com/abstract=3040170or http://dx.doi.org/10.2139/ssrn.3040170


• Khlif, H., Samaha, K., & Soliman, M, (2019), “Internal Control Quality, Disclosure and Cost of Equity Capital: The Case of an Unregulated Market”, International Journal of Auditing, 23(1), PP.144-160.


• Kristandl, G., Bontis, N, (2007), “The Impact of Voluntary Disclosure on Cost of Equity Capital Estimates in a Temporal Setting”, Journal of Intellectual Capital, 8 (4), PP. 577-594.


• Lev, B., Petrovits, C., & Radhakrishnan, S, (2010), “Is Doing Good Good for you? How Corporate Charitable Contributions Enhance Revenue Growth”, Strategic Management Journal, 31(2), PP. 182-200.


• Marquis, C., Glynn, M., & Davis, G, (2007), “Community Isomorphism and Corporate Social Action”, Academy of Management Review, 32, PP. 925-945.


• Masulis, R. W., & Reza, S. W, (2015), “Agency Problems of Corporate Philanthropy”, Review of Financial Studies, 28(2), PP. 592-636.


• Modigiliani, F., & Miller, M, (1958), “The Cost of Capital, Corporation Finance & the Theory of Investment”, Journal of American Economic Review, 48, PP. 261-297.


• Moser, D. V., & Martin, P. R, (2012), “A Broader Perspective on Corporate Social Responsibility Research in Accounting”, The Accounting Review, 87, PP. 797–806.


• Navarro, P, (1988), “Why Do Corporations Give to Charity?”, The Journal of Business, 61, PP. 65–93.


• O'Neill, H., Saunders, C., & McCarthy, A, (1989), “Board Members, Corporate Social Responsiveness and Profitability: Are Tradeoffs Necessary?”, Journal of Business Ethics, 8(5), PP. 353-357.


• Orlitzky, M., Schmidt, F. L. & Rynes, S. L, (2003), “Corporate Social and Financial Performance: A Meta-analysis”, Organization studies, 24(3), PP. 403-441.


• Sanchez, C, (2000), “Motives for Corporate Philanthropy in El Salvador: Altruism and Political Legitimacy”, Journal of Business Ethics, 27(4), PP. 363-375.


• Seifert, B., Morris, S. A., & Bartkus, B. R, (2003), “Comparing Big Givers and Small Givers: Financial Correlates of Corporate Philanthropy”, Journal of Business Ethics, 45(3), PP. 195–211.


• Varadarajan, P.R., & Menon, A, (1988), “Cause-related Marketing: A Coalignment of Marketing Strategy and Corporate Philanthropy”, Journal of Marketing, 52, PP. 58–74.


• Wang, J., & Coffey, B. S, (1992), “Board Composition and Corporate Philanthropy”, Journal of Business Ethics, 11, PP. 771–778.


• Werbel, J. D., & Carter, S. M, (2002), “The CEO’s Influence on Corporate Foundation Giving”, Journal of Business Ethics, 40, PP. 47–60.


• Wokutch, R. E., & Spencer, B. A, (1987), “Corporate Saints and Sinners: The Effects of Philanthropic and Illegal Activity on Organizational Performance”, California Management Review, 29(2), PP. 62-77.


• Ye, K., & Zhang, R, (2011), “Do Lenders Value Corporate Social Responsibility? Evidence from China”, Journal of Business Ethics, 104(2), PP. 197–206.


• Zhang, M., Xie, L., & Xu, H, (2015), “Corporate Philanthropy and Stock Price Crash Risk: Evidence from China”, Journal of Business Ethics, 3(2), PP. 1-23.