Agency Problem and Corporate Philanthropy—Evidence from China’s Anticorruption Campaign

This study explores the effect of China’s anticorruption campaign as a natural experiment for testing the agency-cost view of philanthropy. We find that state-owned enterprises (SOEs), which are more influenced by this campaign, experienced larger declines in philanthropy than non-state-owned enterprises (non-SOEs), especially regarding the percentage of high-agency-cost donations. The effect is more pronounced for firms with higher agency costs, namely firms with higher perks and located in low-legal-protection regions. Further, using manually collected data on firms’ philanthropy disclosure, we find that the campaign improves transparency in corporate philanthropy disclosures. SOEs are more likely to disclose donation information and provide more detailed disclosures than non-SOEs post-campaign. Finally, we find that investors react more positively to SOEs’ philanthropic announcements after the campaign than to non-SOEs’ announcements. Overall, our findings support the agency-cost view of corporate philanthropy, and external monitoring can curb the agency costs associated with such behavior. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M14; G38.