Managerial Altruism and Governance in Charitable Donations

We describe a double agency problem in firms’ charitable donations. When managers have better knowledge about the effectiveness of donations and their altruistic preferences, it is difficult for shareholders to tell whether charitable donations are made for a strategic purpose or due to managerial a...

Full description

Saved in:
Bibliographic Details
Published in:Managerial and decision economics 2017-10, Vol.38 (7), p.1058-1068
Main Authors: Ho, Shirley J., Huang, Cheng-Li
Format: Article
Language:English
Subjects:
Altruism
Authorization
Charities
Compensation
Donations
Effectiveness
Governance
Managers
Ownership
Philanthropy
Stockholders
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We describe a double agency problem in firms’ charitable donations. When managers have better knowledge about the effectiveness of donations and their altruistic preferences, it is difficult for shareholders to tell whether charitable donations are made for a strategic purpose or due to managerial altruism. We characterize the equilibrium donations in a heterogeneous competition model. We show that managerial altruism is a substitute for the effectiveness of donations, and excess donations cannot be prevented by a compensation scheme that reduces the interest conflicts between ownership and management. Under board authorization, the board will tolerate donations with high effectiveness and low altruism as well as donations corresponding to low effectiveness and high altruism. Under a penalty scheme, the altruistic manager will increase donations, in order to increase donation’s strategic benefit to compensate for the loss from the penalty.
ISSN:0143-6570
1099-1468
DOI:10.1002/mde.2845