This study examines the effect of corporate philanthropic giving on the cost of equity capital focusing on Korean firms. We find that corporate philanthropic giving increases the implied cost of equity capital. This positive association is more pronounced in low-cash-holding firms and non-chaebol firms with low cash holdings. Thus, our results support agency cost view of corporate donation and suggest that high equity risk premium associated with corporate donation is pronounced in financially constrained firms. From policy standpoint, regulators can consider expanding more detailed disclosure requirements regarding corporate philanthropy for more intense monitoring. For instance, regulators can require CEO and independent directors to disclose their affiliations with public interest foundations.
Ⅱ. Korean Firms’ Corporate Giving Trend
Ⅲ. Literature Review
Ⅳ. Theories and Hypotheses
Ⅴ. Research Methodology
Ⅵ. Empirical Results