Abstract:
This study analyzes the impact of corporate philanthropy on the financial performance of firms listed on the Pakistan Stock Exchange. The purpose of this study is to examine whether or not corporate giving is worthwhile. This study also considers the stakeholder theory and value-enhancement theory related to the corporate giving. This study considers the corporate expectations formed by societal giving. To determine the relationship between corporate philanthropy and financial performance, we consider the dataset of 35 non-financial firms during the period between 2007 and 2017. We use the feasible generalized least square (FGLS) estimator and the results suggest a positive association of corporate philanthropy with certain financial indicators of the firm such as liquidity, advertising expenses and return on its assets. However, the borrowing of a firm exhibits a negative relationship with corporate giving. Although philanthropic activities are voluntary, most firms in Pakistan are engaged in this practice to enhance their corporate image to increase their overall value. This, in turn, affects investor perceptions. This is beneficial for a firm specifically in a competitive business environment. Corporate giving caters to various stakeholders interests when executed at an efficient scale. Firms that engage with higher philanthropic activities gain more positive stakeholder responses. Furthermore, our findings indicate that the share price of a firm, reflecting its value is positive and significantly affected by cash flow from operating activities and book value per share. This research paves way for future research in the corporate philanthropy branch of CSR specifically in developing countries such as Pakistan. The findings would be useful for various stakeholders such as investors, managers, policy makers and analysts in decision making and target setting.
