Managerial Altruism and Governance in Charitable Donations

Shirley Ho () and Cheng‐Li Huang

Managerial and Decision Economics, 2017, vol. 38, issue 7, 1058-1068

Abstract: 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. Copyright © 2017 John Wiley & Sons, Ltd.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:38:y:2017:i:7:p:1058-1068

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