How Corporate Charitable Giving Reduces the Costs of Formal Controls

Bernhard E. Reichert () and Matthias Sohn ()
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Bernhard E. Reichert: Virginia Commonwealth University
Matthias Sohn: European University Viadrina Frankfurt (Oder)

Journal of Business Ethics, 2022, vol. 176, issue 4, No 5, 689-704

Abstract: Abstract Formal control systems are a common instrument to align employees’ interests with those of managers and companies. However, research shows that employees perceive formal controls as a sign of distrust and restraint, which can lead to costs of control in the form of lower employee cooperation and effort (e.g., Falk and Kosfeld 2006; Christ 2013). We propose that charitable giving reduces these costs of control. We draw on the halo effect and propose that corporate charitable giving alters employees’ perception of and reaction to formal controls. In a laboratory experiment, we find that charitable giving by a company creates a higher level of employee trust in a manager who decides to implement a control and a more positive assessment of formal control. These positive effects of charitable giving lead to lower costs of control compared to the absence of charitable giving. We thereby provide an example of how charitable giving as a corporate social responsibility (CSR) activity yields positive benefits by altering the behavior of internal company stakeholders.

Keywords: Corporate charitable giving; Halo effect; Costs of controls (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10551-020-04695-y

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