Corporate Philanthropy: An Analysis of Corporate Contributions

IN VIEW of the importance of philanthropy in our society, it is surprising that so little attention has been given to it by economic or social theorists. In economic theory, especially, the subject is almost completely ignored.' This article seeks to remedy a small part of that ignorance. The goal of the research reported here was to increase the understanding of why business corporations contribute to literary, scientific, religious, charitable, educational, and other humanitarian organizations.2 Two alternative forces assumed most frequently to explain corporate giving are the traditional profit motive and, more recently, the evolving assertion of social responsibility or duty.3 Sometimes these two different motives, profit and duty, lead to different predictions about the effect of firm size and industry structure on the extent of corporate contributions. We shall look for opportunities to make such predictions and then test them by reference to the data. In a full analysis of corporate giving, one would have to recognize many independent variables. The list would include such variables as time, place, industry structure, firm size, cost and revenue functions, nature of the contribution, state and federal legal codes, common law interpretations, nature of stockholders, and many others. This article looks only at the donors and ignores the differential effects of variation among recipients. Each of these variables is mentioned, but firm size and industry structure receive most attention. At most points throughout this paper, the variable we seek to explain is the contribution ratio, which is the ratio of the dollar value of charitable contributions to the dollar amount of profits of various groupings of firms. Contributions will be defined as the dollar value of donations deducted in corporate income tax returns, as reported to the Internal Revenue Service (I.R.S.). Profits will be defined as compiled net profit, also as reported to the I.R.S. The next section of this paper describes the data in greater detail. Section III presents the predictions, the data, and the interpretations. A final section contains brief concluding remarks. * Assistant professor of accountancy and faculty research assistant, Research Center, School of Business and Public Administration, University of Missouri.