Institutional Ownership and Corporate Philanthropic Giving in an Emerging Economy

Abstract

In this study, we examine the effect of institutional ownership on corporate philanthropy in China, an emerging economy. Employing stakeholder identification and salience theory, we posit that institutional ownership positively influences corporate philanthropy, which varies for different types of institutional investors. We further argue that institutional ownership's influence is stronger when philanthropy is aligned with firm goals. Using data from Chinese publicly listed firms, we find a positive effect of institutional ownership on philanthropy, and this effect is stronger for domestic institutional owners when compared to foreign institutional owners, and long-term when compared to short-term institutional owners. We also find that the positive influence of institutional ownership is stronger in private firms and in regions with low institutional development – situations characterizing high alignment between philanthropy and firm goals. Our findings highlight the important role of institutional investors on corporate philanthropy decisions, which have implications for scholars studying and policy makers enacting corporate governance in emerging economies.

Principal-Principal Conflicts and Socioemotional Wealth in Family Firms

“…Hence, an established corporation is strongly advised to have the systematic governance practice that able to sustain the business in order to generate the desired profit. Then, the institutional investors will be more willing to inject the large capital into these companies in the long term (Song et al, 2016).…”

How Owners Matter? An Examination of Ownership Type in Corporate Disaster Relief Giving

“…Although there is substantial evidence that owner identity has a bearing on decision‐making and ultimately on performance (see Sur et al, ), we were unclear about their specific and differentiated effects on social performance or behaviour. The literature on the role of owners in philanthropy is scant, with very few exceptions (Neubaum & Zahra, ; Song et al, ; Zhang et al, ) focusing on specific owner types. For instance, Neubaum and Zahra () and Song et al () are mostly concerned about the role of institutional investors, while Zhang et al’s () study is mostly concerned about state ownership's effect, on philanthropy.…”

“…Empirical studies support the idea that institutional owners concerned about building trust with consumers would fear the cost of lost legitimacy more than the cost of CP (Neubaum & Zahra, ). They would therefore tend to approve rather than limit CP as argued by Song et al (). In addition to this general behaviour toward CP, when we consider the specific philanthropic giving to disaster relief in this study, we believe that institutional ownership would value firm legitimacy even more, which would enhance CP.…”

“…As a result, it could considerably affect legitimacy. This argument has stronger theoretical and empirical support (Song et al, ). Thus, we conclude that institutional investors are likely to push their firms to devote more resources in support of disaster relief, which leads us to formulate the following hypothesis:H2 Institutional ownership has a positive effect on CP .…”

“…At the other end, in competing with others, institutional investors are seen as very sensitive to consumer trust (Chaganti & Damanpour, ; Neubaum & Zahra, ). They would thus show concern about how they are perceived (Barnett & Hoffman, ; Song et al, ). Heiner () confirms that institutional investors are more able to assimilate and act upon information about socially responsible corporate practices than individual investors.…”