Does corporate philanthropy provide insurance value? Evidence from the securities law revision in China

Yijun Liu, Trung Nguyen, Rong Xu and Donald Lien

Pacific-Basin Finance Journal, 2025, vol. 91, issue C

Abstract: This study investigates the ex-ante insurance value of corporate philanthropy on firm valuation by exploiting an exogenous increase in firms' future litigation risk due to the adoption of class-action lawsuits in the 2019 Securities Law revision. Analyzing a sample of Chinese listed firms constructed from the propensity score matching approach, we find that the commitment to corporate philanthropy exerts ex-ante insurance-like effects. In addition, firms with a history of being a defendant in a lawsuit or greater litigation-related expenses realize more benefits from CP investments. The empirical findings are robust to additional sensitivity checks and offer important implications regarding the use of corporate donations as a risk management tool.

Keywords: Corporate philanthropy; Securities law revision; Insurance-like effects; Event study method; Litigation risk (search for similar items in EconPapers)
JEL-codes: G32 L51 M14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:91:y:2025:i:c:s0927538x25000691

DOI: 10.1016/j.pacfin.2025.102732

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