Electronic copy available at: http://ssrn.com/abstract=1803474Electronic copy available at: http://ssrn.com/abstract=1803474Electronic copy available at: http://ssrn.com/abstract=1803474

1

THE VALUE OF CORPORATE PHILANTHROPY DURING TIMES OF CRISIS:

THE SENSEGIVING EFFECT OF EMPLOYEE INVOLVEMENT

Alan Muller*

University of Amsterdam Business School

Strategy & Marketing Section

Plantage Muidergracht 12

1018 TV Amsterdam

The Netherlands

+31 20 525 4262

amuller@uva.nl

Roman Kräussl

VU University Amsterdam

De Boelelaan 1105

NL-1081HV Amsterdam

The Netherlands

+31 20 598 6102 / 6060

rkraeussl@feweb.vu.nl

Forthcoming in Journal of Business Ethics

April, 2011

The authors are grateful to editors Adam Lindgreen and Stephen Brammer and the two

anonymous reviewers for their supportive and constructive feedback. We also thank Mike

Pfarrer, Kevin Steensma and Chris Bauman for their insightful comments on this or previous

versions. This manuscript has benefited from feedback by participants at the 2nd

annual CSR

Conference at Humboldt University in Berlin (October 2006), a seminar hosted by the CIBC

Centre for Corporate Governance and Risk Management at Simon Fraser University (March

2008), and the Academy of Management annual meeting in Anaheim (August 2008). An earlier

version of the paper was among the finalists for the SIM division‘s 2008 Best Paper award and is

included in the 2008 Academy of Management Best Paper Proceedings.

*corresponding author

Electronic copy available at: http://ssrn.com/abstract=1803474Electronic copy available at: http://ssrn.com/abstract=1803474Electronic copy available at: http://ssrn.com/abstract=1803474

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THE VALUE OF CORPORATE PHILANTHROPY DURING TIMES OF CRISIS:

THE SENSEGIVING EFFECT OF EMPLOYEE INVOLVEMENT

Abstract:

Recent research suggests that philanthropy‘s value to the firm is largely mediated by contextual

factors such as managers‘ assumed motives for charity. Our paper extends this contingency

perspective using a ‗sensegiving‘ lens, by which external actors‘ interpretations of organizational

actions may be influenced by the way in which the organization communicates about those

actions. We consider how sensegiving features in philanthropy-related press releases affect

whether investors value those donation decisions. For our empirical investigation we analyze

abnormal returns to announcements by U.S. Fortune 500 firms documenting their donations to

Hurricane Katrina disaster relief in 2005. We expect that in general, donation decisions would be

controversial given the uncertainty surrounding the hurricane‘s economic effects at the time.

However, we also propose that announcements emphasizing employee involvement in the

donation send investors positive signals about the firm‘s ability to bounce back from the

disaster‘s adverse effects. We find empirical support for our hypotheses, and discuss implications

for theory and practice.

Key words: corporate philanthropy, employee involvement, firm value, Hurricane Katrina,

sensegiving

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THE VALUE OF CORPORATE PHILANTHROPY DURING TIMES OF CRISIS:

THE SENSEGIVING EFFECT OF EMPLOYEE INVOLVEMENT

The literature on the potential benefits of corporate philanthropy to the firm is as mixed as it is

extensive. While some propose that charitable contributions have no clear relevance for firm

performance (Bartkus et al., 2002), others argue that corporate philanthropy can yield tangible

benefits for the firm if there is clear alignment between its philanthropic strategy and its overall

business objectives (Hess et al., 2002; Porter and Kramer, 2002). A number of other studies

focus on the benefits that may stem from positive reputation effects (Brammer and Millington,

2005; Fombrun and Shanley 1990), in particular in the form of ‗insurance‘ against the adverse

effects of negative events (Godfrey et al., 2009; Peloza, 2006). In this view, corporate

philanthropy can lead to enhanced trust among key stakeholders, which can lead to reduced

transaction costs, risk mitigation, and improved access to vital resources (Arthur, 2003; Hillman

and Keim, 2001; Jones 1995; Wang et al., 2008). Empirically, however, whether philanthropy

actually contributes to firms‘ financial performance remains disputed (Orlitzky et al., 2003;

Patten, 2008; Saiia et al., 2003; Seifert et al., 2004).

One element that has been proposed to explain the mixed empirical results is the way in

which corporate philanthropy is perceived and interpreted by the firm‘s stakeholders. Godfrey

(2005), for instance, has emphasized the negative firm value effects when corporate philanthropy

is perceived as a blatant attempt at ingratiation, versus the positive firm value effects when

corporate philanthropy is perceived as sincere (cf. also Dean, 2003, and McGuire et al., 2003).

This view holds that it is not specifically the act itself that triggers a reaction, but rather that the

reaction is mediated by the assumptions the firm‘s stakeholders hold about the motives

underlying the act. In our paper, we extend this perspective by taking a ‗sensegiving‘ approach to

the relationship between corporate philanthropy and firm value. Prior research in sensegiving has

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argued that actors external to the firm, such as investors, face limitations in their ability to fully

assess the decisions undertaken by management, and thus that organizations may try to manage

external interpretations of organizational actions through the way in which they communicate

about those actions (Fiss and Zajac, 2006; Westphal and Zajac, 1998). Hence, our study falls

within the perspective that a firm‘s market value is in part socially constructed (Zajac and

Westphal, 2004).

This sensegiving perspective on investor management emphasizes that organizational

moves may be controversial and contested among the firm‘s shareholders. While corporate

philanthropy might always be controversial to some degree given its ‗discretionary‘ nature

(Carroll, 1991), we consider a context in which philanthropy may have been particularly

contested: the 2005 Hurricane Katrina disaster. Disaster donations are an increasingly prominent

element of corporate philanthropy (Crampton and Patten, 2008; Muller and Whiteman, 2009)

that some research suggests may be favorably received by investors (Patten, 2008). However we

expect that the pronounced concurrent uncertainty surrounding Hurricane Katrina‘s economic

impact may have led investors to anticipate non-trivial ‗deadweight‘ costs to U.S. firms, such as

those related to supply chain disruptions, employee strain, deteriorated employee performance,

or the diversion of managerial and employee attention (Godfrey et al., 2009; Kleindorfer and

Saad, 2005; Sanchez et al., 1995). Amidst uncertainty regarding the disaster‘s financial

implications for U.S. firms, philanthropic donations by those very same firms at that time may

have been a controversial decision in the eyes of investors.

A sensegiving perspective implies that how a firm‘s constituents react to a philanthropy

decision may be influenced by the way in which the firm communicates about it. Assuming that

sensegiving is a conscious endeavor on the part of management to shape how external actors

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interpret management decisions, a sensegiving perspective fits well within the ‗strategic‘ (Porter

and Kramer, 2006; Saiia et al., 2003) and ‗reputation management‘ (Brammer and Millington,

2005; Muller and Kräussl, 2011) views of corporate philanthropy. In our paper, we focus on the

potential sensegiving effect of highlighting employee involvement in corporate philanthropy.

Specifically, we propose that when an organization‘s philanthropy-related press release

highlights employee involvement in the donation, this sends positive signals to the market about

corporate philanthropy‘s potential value to the firm and helps to establish ―buy in‖ (Fiss and

Zajac, 2006, p. 1173) among skeptical investors. We offer two reasons for this. First, employee

involvement may indicate an organizational environment in which employees feel comfortable

revealing their prosocial identities (Aquino and Reed, 2002; Grant et al., 2008), which reinforces

those identities and strengthens their sense of organizational commitment (Aguilera et al., 2007;

Chong, 2009). Greater commitment can lead to enhanced organizational performance, potentially

offsetting the deadweight costs associated with the disaster. Second, employee involvement

might be expected to foster perceptions that philanthropy is sincere, resulting in a positive moral

evaluation by society (Godfrey, 2005). Positive evaluation underlies the formation of

‗reputational capital‘ (Fombrun, 2001; Peloza, 2006), which enhances firm value because it

fosters trust and legitimacy, thereby mitigating risk (Jones, 1995).

Using event study methodology, we explore stock market reactions to Hurricane Katrina

disaster relief donation announcements by U.S. Fortune 500 firms. We find that over a three-day

window, donation announcements lacking references to employee involvement are associated

with significantly negative abnormal returns while donation announcements containing explicit

references to employee involvement are associated with normal returns. Our interpretation is that

investors, facing management‘s controversial decision to allocate corporate resources to

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philanthropy at a time of considerable economic uncertainty, were significantly less likely to

‗buy in‘ to donation decisions that lacked evidence of employee involvement. Our study

contributes to recent work highlighting the conditions under which philanthropy contributes to

firm value (e.g., Brammer and Millington, 2008), and extends research focusing on the value of

employee involvement in companies‘ corporate social responsibility (CSR) activities more

generally (e.g., Bhattacharya et al., 2008).

HYPOTHESIS DEVELOPMENT

While corporate philanthropy has been proposed to add value to the firm in various ways

(Godfrey, 2005; Hess et al., 2002; Porter and Kramer, 2002; Sen et al., 2006; Wang et al., 2008),

empirical results are mixed (Orlitzky et al., 2003; Patten, 2008; Saiia et al., 2003; Seifert et al.,

2004). A recent meta-analysis reinforces this observation, having found considerable variation in

the social performance–financial performance relationship, depending on the measures and

assumptions of causality (Margolis and Walsh, 2003). Explaining these inconsistent empirical

findings, Luo and Bhattacharya (2006, p. 2) argue that the relationship can be mediated by any

number of ―contingency conditions‖, such as customer satisfaction.

In response, recent research has found that the value of philanthropy depends on, for

example, a firm‘s visibility and sensitivity to consumer perception (Lev et al., 2010), the amount

given (Patten, 2008; Wang et al., 2008), and whether donations are considered surprising or

regarded as new information (Brammer and Millington, 2008). We extend this contingency

perspective by proposing that the relationship between philanthropy and firm value is affected by

1) the level of uncertainty and anxiety present in the market with respect to Hurricane Katrina‘s

economic impact (cf. Govekar et al., 2002), and 2) the way in which one aspect of the donation

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effort, employee involvement, may influence how investors make sense of the donation and its

value to the firm.

Hurricane Katrina donations: economic uncertainty and managerial discretion

Carroll‘s (1991) pyramid of responsibilities proposes that managers are afforded the discretion to

engage in corporate philanthropy once they have adequately fulfilled their legal, ethical, and

economic responsibilities. As such, crisis or uncertainty may prompt investors to question

philanthropic decisions based on the expectation that managers‘ primary responsibility at such

times is one of economic continuance. Specifically, Hurricane Katrina was not just a

humanitarian disaster, but also a negative economic event for many U.S. firms. In addition to its

adverse effects on hundreds of thousands of people up and down the Gulf Coast (Hunter, 2006),

the storm also caused extensive material damage to Gulf Coast infrastructure. With total

economic losses reported at $125 billion, Hurricane Katrina was the costliest hurricane to ever

hit the United States (SwissRe, 2007).

Previous research has shown how disasters can pose significant commercial risks

stemming from supply chain uncertainties (Kleindorfer and Saad, 2005). Beyond that, the

material effects of Hurricane Katrina may have raised expectations of other ‗deadweight costs‘

for U.S. firms, such as those associated with refinancing, diversion of managerial time and

attention, tighter supplier terms, or the loss of key employees (Godfrey et al., 2009; see also

Muller and Kräussl, 2011). More importantly, these potential costs—and the uncertainty

surrounding them—were anticipated to impact the U.S. economy more broadly: companies

farther north that depended on Mississippi River transport were also significantly affected by the

supply disruptions at the Port of New Orleans (Bernick, 2005; Pacyniak, 2005; cf. also Boone,

2005). Further, the full effects of higher costs for fuel, commodities and shipping would take

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―weeks or months‖ to fully assess (Daniels, 2005, p. 1). As a result, some believed Hurricane

Katrina would cause as much as a full percentage-point drop in overall U.S. gross domestic

product (Dallas Morning News, 2005).

Thus the prospects were raised of as-yet unknown costs to businesses, prompting

restaurant chain O‘Charley‘s to issue a statement on September 6, 2005 that they would revising

earnings projections for 2005 later on in the year due to uncertainty surrounding the disaster‘s

economic impacts (Business Wire, 2005). At the same time, a recent report shows that U.S.

foundations, corporations, and other institutional donors contributed nearly $1.3 billion to

Katrina relief, recovery and rebuilding efforts (Renz, 2009). Given the expectation that U.S.

firms faced non-trivial costs associated with post-disaster recovery, it is questionable whether

investors would view donations as money well spent or if, instead, investors may have been less

tolerant of ‗managerial discretion‘ in philanthropic resource allocation (Bartkus et al., 2002;

Carroll, 1991; Murray and Montanari 1986). Therefore, we hypothesize that:

Hypothesis 1: Disaster donation announcements by U.S. firms in response to

Hurricane Katrina will be associated with negative abnormal stock returns.

The sensegiving effect of employee involvement in philanthropy

Hurricane Katrina thus raised the prospect of unforeseen future costs to firms, but at the time of

Katrina‘s landfall in late August of 2005, those costs were as yet unknown and highly uncertain.

Recent research has shown that in times of uncertainty, investors are particularly likely to engage

in ―active sensemaking and reevaluation of a firm‖ (Pfarrer et al., 2010, p. 1133). Managerial

decisions, in the face of this active reassessment, are likely to be subject to heightened scrutiny

and thus it may be even more critical to establish ―buy in‖ (Fiss and Zajac, 2006, p. 1173) among

9

the firm‘s stakeholders. As investors engage in intensified sensemaking, they may also be

especially sensitive to the sensegiving efforts of management; i.e., the way in which decisions

are framed and disseminated to the firm‘s constituents. Our central thesis is that evidence in

corporate communications of employee involvement in contributions to disaster relief may ‗give

sense‘ to investors as they scrutinize this seemingly imprudent resource allocation decision.

Understanding how investors interpret employee involvement may be important for

advancing thinking on the relationship between firm value and philanthropy because, as noted

previously, employees increasingly play a central role in firms‘ CSR activities (Bhattacharya et

al., 2008) and evidence suggests that employees are also key players in disaster donations

(Chong, 2009). For example, in Best Buy‘s donation announcement following Hurricane

Katrina, CEO Brad Anderson emphasized that ―our employees […] want to give, and we are

helping to make it easy for them‖ (Best Buy, 2005). Similarly, JPMorgan Chase CEO William

Harrison said ―our $1 million dollar donation, as well as our employee giving and the company‘s

match, reflect our support for the daunting rebuilding job ahead‖ (JPMorgan Chase, 2005).

While such announcements could be dismissed as ‗so much PR‘, we offer two arguments why

evidence of employee involvement in donations may lead to (the preservation of) firm value.

First, employee involvement may send signals to the market of the firm‘s ―moral

coloration‖ (Godfrey, 2005, p. 782), enhancing the reputational capital that reinforces the firm‘s

legitimacy and ultimately enhances firm value. By promoting the role of employees in its

charitable efforts, the firm presents itself as a ‗human organization‘ (Kanov et al., 2004), which

increases the likelihood that charity would be evaluated positively because society will impute

moral values to the firm‘s managers and employees (Godfrey, 2005). This greater moral

character attributed to the organization as a result of employee involvement will generate higher

10

levels of the moral reputational capital associated with lower firm risk and a more rapid post-

Katrina recovery (Godfrey et al., 2009; Knight and Pretty, 1999).

Second, employee involvement may signal an environment in which employees feel more

positive about, and attached to their company. Employees, as human beings, have prosocial

identities that encourage other-interested behaviors (Grant et al., 2008). They bring these

identities with them into the workplace (Aquino and Reed, 2002), and thus the opportunity to

actively participate in their employer‘s CSR activities allows them to express and reinforce that

prosocial identity, ultimately strengthening their sense of organizational belonging (Aguilera et

al., 2007, Chong, 2009). This enhanced affective commitment is valuable because it improves

motivation and productivity, helps the organization retain knowledge, and reduces the costs

associated with selection and retention (Dutton et al. 1994; Turban and Greening, 1997).

Both arguments suggest that investors may be less critical of corporate disaster donation

announcements if the announcement emphasizes employee involvement, based on expectations

that donating firms with prosocial, actively involved employees will likely recover from the

negative effects of the Katrina disaster more quickly than firms that do not signal such

involvement. We hypothesize the following:

Hypothesis 2: Disaster donation announcements by U.S. firms in response to

Hurricane Katrina that emphasize employee involvement in the donation will be

associated with significantly less negative abnormal stock returns than

announcements that do not emphasize employee involvement in the donation.

DATA AND METHODOLOGY

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We use event study methodology with subgroup- and regression analysis to explore variance in

abnormal returns associated with donation announcements following Hurricane Katrina. For our

data set we used the 2004 listing of the U.S. Fortune 500. Of these firms, 37 firms were not

publicly listed and 21 firms had been acquired, merged, or had gone bankrupt in the first eight

months of 2005. For the remaining sample of 442 firms, we searched company websites, press

release archives, newswires and major U.S. newspapers via Lexis-Nexis for Katrina donation

announcements, finding dated press releases for 196 firms. Of these 196 cases, ten donated on

non-trading days, leaving a working sample of 186 firms.

Dependent variable

Our dependent variable is the cumulated abnormal return (CAR) associated with donation

announcements following Hurricane Katrina. Daily returns are calculated using the lognormal

formula Rt = ln (Pt / Pt-1) over the interval from August 20, 2004 to August 21, 2005 (254 trading

days). Abnormal returns are given as the differences between the ex post return of the security

over the event window and the normal, expected return of the firm security over the event

window. We use the market model, which links the return of a security to the return of the

market portfolio to derive the normal expected return (Brown and Warner, 1985). This model

provides a generated modeled normal return :

= i + iRmt + it ,

where R*it is the model return t of security i and Rmt is the return of the market portfolio, and it

is the disturbance term with a zero mean. To derive the abnormal return, we use the formula

,

where i

tAR is the abnormal return t of security i, Rit and Rmt are the returns at time t of security i

and the market portfolio, respectively. The parameters and are estimated by Ordinary Least

12

Squares (OLS) regression. By means of substitution the following measure of an individual

stock‘s abnormal return on a given day t is derived by

,

which is then cumulated over the days in the event window. The S&P 500 Composite index is

used as a benchmark to calculate daily volatility of stock returns. Return data for the S&P 500

Composite were taken from the Center for Research in Security Prices (CRSP) database for the

period from September 1, 2004 until February 28, 2006.

The donation event is the day on which a firm issued a press release or published an

announcement documenting a corporate donation in response to the Katrina disaster. We

cumulate abnormal returns starting at the closing price of a firm‘s stock the day before the

announcement (t = -1) up through the closing price the day after the announcement (t = +1),

creating a three-day event window (CAR [-1,1]). We use a three-day window to account for

possible early information leakage or after-hours donation announcements, while trying to keep

the window as short as possible in order not to contaminate the donation announcement effects

(McWilliams and Siegel, 1997).

Independent variable

We capture whether donation announcements emphasize employee involvement by coding press

releases. In general, companies whose donation announcement featured employee involvement

often indicated that involvement in the press release headline, e.g.: ―Boeing to Contribute $1

million to American Red Cross for Hurricane Katrina Relief; Will Match Employee Donations‖

(Boeing, 2005); or ―JPMorgan Chase, Employees To Donate Up to $3 Million for Hurricane

Katrina Relief‖ (JP Morgan Chase, 2005). The body of the press release typically expanded on

this theme, e.g.: ―Motorola employees worldwide remain deeply concerned about the devastation

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caused by Hurricane Katrina and continue to work exhaustively to respond to the communication

needs of both Motorola customers and non-customers in the impacted areas‖ (Motorola, 2005).

The two authors coded the 186 press releases in the sample independently, reaching good

agreement initially (Cohen‘s Kappa = 0.862) and discussing to reach consensus on the 13 cases

where rater interpretations differed. Based on this coding we created a dummy variable that takes

a value of 1 if a donating firm‘s press release made explicit reference to employee involvement

in the firm‘s donation effort (62 cases, or 33%) and 0 if it did not (124 cases, or 67%).

Control variables

If investors are searching for signals that an organization will recover from the potential negative

effects of a crisis, it is important to account for the organization‘s pre-existing reputation for

CSR. Like corporate philanthropy, a pre-existing reputation for CSR represents the accumulation

of prior investments in CSR and thus forms a potential source of ―moral reputational capital‖

(Godfrey, 2005, p. 783) that could already be expected to contribute to a more rapid recovery

from Katrina‘s economic effects. In the presence of a pre-existing reputation for CSR, investors

may interpret subsequent investments (in the form of Katrina-related disaster donations) as

unnecessary, given that the potential for moral reputational capital may already be ‗priced in‘

based on that pre-existing reputation.

To control for this effect, we include a dummy variable representing inclusion in the 2004

Dow Jones Sustainability Index (DJSI) as a measure of a firm‘s prior reputation for CSR. The

DJSI for 2004 consists of companies in the top 10 percent of their respective industries in terms

of overall sustainability, measured across economic dimensions such as the firm‘s code of

conduct and its corporate governance, environmental dimensions like environmental reporting,

and social dimensions like corporate citizenship, labor relations and human capital development.

14

The DJSI is comprehensive in scope and independently audited, and can therefore be considered

a strong indicator of overall international social and environmental performance (Ricart et al.,

2005).

We control for the firm‘s sector as it is related to both social behaviors and financial

performance (Adams and Hardwick, 1998; Bertels and Peloza, 2008; Godfrey et al., 2010), using

a single dummy variable that takes a value of 1 for manufacturing firms and 0 for service firms.

Although we ran specifications with finer-grained classifications of up to 12 industries, the

results for our variables of interest (see below) remained unchanged; as a result we opted for the

more parsimonious model. We also control for both advertising intensity (advertising

expenditures divided by total sales) and R&D intensity (R&D expenditure divided by total sales).

Advertising intensity is related to both corporate philanthropy (Fry et al. 1982) and the likelihood

of making disaster donations (Zhang et al., 2009), and R&D intensity is related to financial

performance (McWilliams and Siegel, 2000). Both measures were drawn from Compustat for

2004. Given the economic impact of Katrina on the Gulf Coast, we also control for the potential

effects of having a significant local presence in the region. We examined 2004 10-K SEC filings

and looked for evidence of operations in the four federally designated disaster states (Florida,

Alabama, Mississippi, and Louisiana) under 10-K Item II (‗Properties‘) and the list of ‗principal

subsidiaries‘ in the 10-K appendix. In our sample, 127 donating firms (68%) had an identifiable

presence in one or more of these four states.

In accordance with the literature on corporate philanthropy, we also control for size and

profitability. Company size has often been linked to corporate philanthropy because larger

companies are more visible and consequently subject to greater scrutiny from the public and the

media. This scrutiny may translate to more pressure from stakeholders to be responsive (Adams

15

and Hardwick, 1998; Brammer and Millington, 2004). Size is measured as the natural logarithm

of total revenues. Profitability has also been shown to predict philanthropy and as a measure of

performance is related to firm value (Brammer and Millington, 2004; Fry et al. 1982). We

measure profitability as the ratio of net profit to sales. Both revenues and profits were taken from

Compustat.

We also control for the relative size of the donation. We measure this by dividing the

reported donation value by the total market capitalization of the firm. We introduce this control

to allow for the possibility that the relative size of the donation may affect investors‘ perception

of the potential value of the ‗investment‘, i.e. that investors may discount the potential gains

derived from the disaster donation by the relative amount of resources invested to achieve such

gains. Additionally, we control for the number of days after Hurricane Katrina hit that the

donation announcement was made (Patten, 2008), because as the days passed from August into

September, 2005, the uncertainty with respect to the economic effects of the disaster was reduced

and investors‘ ‗negativity bias‘ (Pfarrer et al., 2010, p. 1135) was likely more muted.

Lastly, we also controlled for the initial negative effects associated with Hurricane

Katrina‘s landfall. That is, although Hurricane Katrina was a potentially economy-wide negative

event, it is likely that not all firms were negatively affected to the same degree. It is possible that

variance in the hurricane‘s impact on each individual donating firm (and expressed in each firm‘s

stock price) would affect investors‘ reactions to subsequent donation announcements differently.

To capture this potential source of variance we control for the cumulated abnormal returns

(CARs) associated with Hurricane Katrina‘s landfall on the Gulf Coast over the period Friday,

August 26, 2005 (Day -1) to Monday, August 29, 2005 (Day 0), using the event study

methodology outlined above (Katrina made its first landfall in Florida on Thursday, August 25,

16

but the devastation associated with its landfall emerged over the weekend and during its second

landfall in Louisiana on Monday, August 29). We keep the window for this Katrina-related CAR

control short (event window [-1,0]) in order to separate the effects of the hurricane itself as much

as possible from the effects of the donations.

RESULTS

Of our initial 186 cases with donation CARs, we omitted from the analysis 29 firms with

contaminating events during their respective three-day event windows (Table A1 in the

Appendix lists the dates and contaminating events identified per firm) along with eight oil

companies given the direct impact of Hurricane Katrina on oil prices during this period (U.S.

EIA, 2005). This leaves 149 cases for our event study analysis. While we note that there is no

reason prima facie to assume that contaminating events will be systematically positive or

negative (Meznar et al., 1998), accepted event study procedure recommends their exclusion

(McWilliams and Siegel, 1997). We report analyses excluding oil firms and firms with

contaminating events, but note that their inclusion does not materially affect the results.

The overall event study results are reported in Table 1. All results are Winsorized at 1%

to reduce the effects of outliers. In terms of the overall market reaction to donation

announcements (Hypothesis 1), we find that although average abnormal daily and cumulated

returns are negative, returns following donation announcements are not sufficiently negative to

be statistically significant. The binomial Z-test results in the far right column show that for each

individual day and cumulated over time, the incidence of positive returns is significantly lower

than the incidence of positive returns predicted by the market model (57%). In other words,

donation announcements are associated with a higher incidence of negative returns, but not

significantly abnormal in magnitude.

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----------------------------------------

Insert Table 1 about here

----------------------------------------

Table 1 also reports the subgroup analysis results for donation announcements that

emphasize employee involvement and those that do not. For the subgroup of donation

announcements that do emphasize employee involvement, daily and cumulated returns are

positive, but not significantly abnormal. The binomial Z-test results for this subgroup (employee

involvement) also show that the overall incidence of negative returns is in most cases not

significantly different from that predicted by the market model, and in all but one case (CAR

[0,1]) there are more positive cases than negative ones. However, we find that donation

announcements without reference to employee involvement are associated with negative returns.

Day -1 (-.28%) is significant at p<.05; CAR [-1,0] (-.41%) is significant at p<.10, and CAR [-1,1]

(-.56%) is significant at p<.10. Moreover, the binomial Z-test results confirm that, compared to

the market model for this subgroup, the incidence of negative returns is statistically abnormal.

Most importantly, average returns (CAR [-1,1]) differ significantly between the two

groups (p<.01). In contrast, market-model predicted returns are not significantly different (t-

statistic = .868), meaning that otherwise, the two groups are comparable and should be expected

to generate similar returns, ceteris paribus. Therefore our results lend support for Hypothesis 2.

We explore this relationship further through OLS regressions. Of the 149 cases in Table 1, seven

were excluded from subsequent regression analysis for not being part of the ‗DJSI Universe‘ and

an additional 17 firms were excluded for lack of a specified donation value. This leaves 125

cases for the regression analysis. Descriptive statistics and correlations are reported in Table 2.

----------------------------------------

Insert Table 2 about here

----------------------------------------

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Table 2 shows that donation-related abnormal returns (donation CAR [-1,1]) exhibits

bivariate correlation with manufacturing (versus services), the number of days after Katrina

made landfall, and employee involvement in the donation. Also, a number of control variables

show strong bivariate correlations, such as R&D intensity and sector (r = .722). To account for

this potential source of multicollinearity in our OLS parameter estimates we also specified

models without R&D intensity and found materially similar results to those reported in Table 3.

Additionally, we used a more fine-grained categorization of industry (12 industries based on

Fortune classifications instead of just two) with no significant effect on our results. For reasons

of sample size and parsimony we report results with the ‗sector‘ dummy and inclusion of R&D

intensity, noting (see below) that diagnostics revealed no evidence of multicollinearity. Finally,

we observe in Table 2 that after eliminating firms with contaminating events and Winsorizing

(1%) to remove outliers, the average value for Katrina-related abnormal returns was negative (-

.18%), which indicates that investors may have had reason to be skeptical of donations.

Our OLS regression results are shown in Table 3. We report both a control model (Model

1) and a fully specified model, which includes our independent variable capturing employee

involvement (Model 2). The results in Model 2 support the findings from the subgroup analysis,

showing that employee involvement is significant and positive when controlling for other factors

and lending support to our hypothesis. The coefficient for employee involvement (β = .012)

implies that this dummy variable accounted for a difference of 1.2% in stock prices following

donation announcements. At a median market capitalization of $14 billion, this seemingly small

difference would translate into a difference of nearly $170 million in market value.

Additionally, our control variable estimates lead to a number of observations. First,

donations by firms known for their CSR (DJSI-included) were, ceteris paribus, received more

19

negatively than donations by other firms. This may be because donations are expected of such

firms, compared to the ‗surprise‘ effect (Pfarrer et al., 2010) of donations by firms less known

for CSR. To check the robustness of this finding, we also ran our regressions using inclusion in

the KLD ‗Domini Sustainability Index‘ (KLD, 2010) as an alternate measure of a firm‘s

reputation for CSR, and note that this specification generates materially similar results.

----------------------------------------

Insert Table 3 about here

----------------------------------------

Also, Table 3 shows that returns to donation announcements were more positive the later

the firm donated, perhaps because as uncertainty about Hurricane Katrina‘s economic effects

abated, donations were seen as increasingly acceptable. The coefficient for donation value is

negative and significant, suggesting that investors were more critical of relatively large donations

than relatively small donations (we checked for a quadratic effect but, in contrast to Wang et al.

[2008], we found none). This may be related to the economic effects of Hurricane Katrina. Given

the adverse effects of the crisis on firm value (cf. Schnietz and Epstein, 2005), investors may

have deemed excessive donation amounts to be imprudent or ingratiating (the coefficient in

Table 3 for Katrina-related abnormal returns is non-significant, however). Although both groups

had statistically similar median market capitalization values, firms with employee involvement in

the donation gave significantly more (median donation value of $1.5 million) than firms without

employee involvement in the donation ($1 million median donation value), significant at p<.001

(Mann-Whitney-Wilcoxon Z-statistic = -3.793). Yet any negative value effects of larger donation

amounts were more than offset by the benefits provided through greater employee involvement.

The models reported in Table 3 are significant and exhibit moderate explanatory power.

The highest variance inflation factor (VIF) was 2.5 and the condition number was 13.7, raising

20

no concerns of multicollinearity. Visual examination of scatter plots of the residuals did not

suggest any evidence of heteroskedasticity. We reran our regressions using a donation CAR [-

1,1] that had been normalized using Blom‘s technique (Blom, 1958), and found our results

robust to this alternate specification. We also reran our analyses including the cases with

contaminating events (n = 154), and again with inclusion of the oil companies (n = 162). The

inclusion of firms with contaminating events reduced the model R2 but did not affect the

coefficients or significance levels. Our results were in fact stronger when the oil companies were

included, suggesting that they introduce bias into the results; thus their exclusion is warranted.

Lastly, we reran the model omitting all firms that donated within the first week (August 29 –

September 2) to be certain the effects of the donation were distinct from the effects of the

disaster, and found our results (n = 77) to be similar to, albeit weaker than, those reported here.

Controlling for sample selection bias

One risk with empirical techniques that compare an effect across two groups is that the two

groups may differ systematically. In other words, firms who display employee involvement

prominently may differ systematically from those who do not. This potential sample-selection

bias may affect the parameter estimates in OLS regression models (Heckman, 1979). As noted

above, Table 3 indicates that employee involvement accounts for a 1.2% difference in market

value ($170 million in terms of median market capitalization). In comparison, the absolute value

of subgroup differences in CAR [-1,1] as reported in Table 1 is .96% (or about $130 million). To

identify the magnitude of this effect more robustly, we use nearest-neighbor matching analysis

(Abadie et al., 2004), a technique to control for potential bias in the coefficient estimates.

Matching is a technique commonly used in labor economics to estimate the effect of

‗treatment‘ on a particular outcome variable such as participation in a job-training program on

21

future wages (e.g. Lechner, 1999). The challenge with treatment is that for each observation i,

the unit-level treatment effect is τi = Yi(1) − Yi(0); however, only one of the potential outcomes

Yi(0) or Yi(1) is actually observed. If assignment into one group or the other is not random, the

result may be biased coefficients and thus an inflated or deflated measurement of the ‗treatment‘

effect. Matching techniques attempt to redress this selection bias by comparing observations

Yi(0) and Yi(1) along the control variables to identify possible sources of bias in the identified

treatment effect (Heckman et al., 1998). Matching techniques impute the missing potential

outcome by using average outcomes for units of analysis with similar values for the covariates

(Abadie et al., 2004). In our case, ‗treatment‘ is the reference to employee involvement in

donation announcements in response to Hurricane Katrina, and the treatment effects we attempt

to capture are the abnormal returns to donation announcements (see the Appendix for a more

detailed discussion of nearest-neighbor matching methodology). The output of the matching

analysis is reported in Table 4.

----------------------------------------

Insert Table 4 about here

----------------------------------------

Table 4 shows that the sample average treatment effect (SATE) is 0.0097, or close to 1%.

This value approximates the OLS regression results (permutations ranged from 0.009 to 0.013),

supporting the findings presented in Tables 1 and 3. The results in Table 4 are robust to changes

in the number of matches (Abadie et al. [2004] specify four matches as the optimum), when

using bias-adjusted estimators, and when specifying exact matches on various control variables.

Matching analysis indicates that our findings are not distorted due to selection bias: signaling

employee involvement in Katrina donations preserved, ceteris paribus, $140 million in firm

value, based on a median market capitalization of $14 billion.

22

However, our paper faces a second potential source of sample selection bias. Although

our study is aimed at differentiating between two categories of donating firms, the fact that we

sample on donating versus not-donating may lead to bias if donating firms may in some way

differ systematically from non-donating firms. As this can affect the generalizability of our

results, we use Heckman‘s (1979) two-stage sample selection procedure to check whether our

OLS coefficient estimates are biased due to unobserved factors that affect whether firms self-

select into the donating category or not. The Heckman procedure uses a first-stage probit model

to capture the likelihood of donating in the first place, and produces a correction factor (the

‗inverse Mills ratio‘) that is subsequently included in the second-stage (OLS) model to adjust for

any potential bias in the estimated OLS coefficients. If the inverse Mills ratio is statistically

significant, then the coefficients produced through OLS alone are biased. We ran the Heckman

two-step procedure (not reported here) but found that the inverse Mills ratio in our case was not

significant (p = .177), indicating that the coefficients in Table 3 are not biased.

DISCUSSION

In our paper we suggest that investors are likely to be critical of disaster donations if the disaster

raises the prospect of deadweight costs that may adversely affect firm value. However, we

propose that sensegiving features of corporate communications can affect investor responses to

philanthropy decisions (cf. Fiss and Zajac, 2006). Specifically, we view evidence of employee

involvement in the donation effort as a sensegiving feature of the announcement that provides

investors, in their heightened state of active reevaluation of the firm, with reasons to expect that

the firm will enjoy a more rapid post-disaster recovery.

First, we argue that evidence of employee involvement may affect the market response

based on how ‗sincere‘ or ‗genuine‘ the philanthropy is perceived to be. Employee involvement

may heighten perceptions of the donation as a moral-based act, leading to the reputational capital

23

that has been proposed to underlie firm value (Godfrey, 2005). Second, we argue that employee

involvement signals greater (future) affective commitment and employee identification with the

organization (Aguilera et al., 2007; Chong, 2009; Dutton et al. 1994; Grant et al., 2008), which

improves motivation and productivity, helps the organization retain knowledge, and reduces

costs associated with recruiting search and selection (Turban and Greening, 1997). We explore

these hypotheses by analyzing the stock market‘s reaction to donation announcements from U.S.

Fortune 500 firms in response to Hurricane Katrina in 2005.

Our results suggest that investors were less than positive in their assessment of donation

announcements by U.S. firms in response to Hurricane Katrina. Overall, returns to donation

announcements were significantly more likely to be negative than positive, although not

significantly abnormal in magnitude. These findings differ from those of Patten (2008), who

found significant, positive abnormal returns to donating (CAR [-3,2] = 0.91%) in his study of

U.S. firms‘ response to the 2004 South Asian tsunami. He attributes these positive market

reactions to an assessment by the community at large that donating is a ‗moral based act‘

(Godfrey, 2005) because alleviating human suffering is an ethical value held by many people.

In contrast, we argue that Hurricane Katrina was accompanied by the anticipation of

future costs associated with post-disaster recovery and, under such circumstances, investors may

have been more critical of donations, preferring that resources be directed towards post-crisis

recovery. We find that returns to donation announcements with no mention of employee

involvement were significantly negative, while returns to donation announcements that

emphasized employee involvement were not significantly abnormal in magnitude, although as

the binomial Z-test (Table 1 above) showed, they were significantly abnormal in incidence. The

negative effect of the reported donation amount (weighted for market capitalization) on abnormal

24

returns also indicates that investors frowned in particular upon large resource allocations to

charity at this time. Thus, our findings highlight the tension that (can) exists between managers‘

desire to respond to humanitarian events and the discretion that shareholders are willing to afford

managers when they are apprehensive about unforeseen costs (Carroll, 1991). Our results suggest

however that contextual features of the philanthropy announcement can reduce the negative

market response to what is otherwise a contested decision (Fiss and Zajac, 2006).

The findings presented here also speak to the debate on how ‗strategic‘ corporate

philanthropy should be. Organization theory and previous research suggest that a more central

role for employees in corporate philanthropy leads to a virtuous cycle of employees‘

identification with the organization and the reinforcement of a CSR-centric organizational

identity (Chong, 2009). In our empirical setting, the prospect of these benefits appears to have

financial value. Yet allowing employees to play a central role in corporate philanthropy may

reduce an organization‘s ability to make philanthropy strategic, since employee-driven giving

reduces management‘s strategic direction of the firm‘s philanthropy. Paradoxically, our results

suggest that investors‘ positive response to an employee-centric approach may actually

compensate for the potential costs of sacrificing managerial control over corporate philanthropy.

This possibility leaves a certain unresolved tension, however, between on the one hand the

potential sincerity of employee involvement, motivated by the desire to do good, and on the

other hand the potential for management to exploit that involvement as part of the firm‘s

reputation management strategy.

Our study is subject to a number of limitations. First and foremost, our paper considers

market reactions to the content of corporate communications. While we postulate certain

mechanisms associated with investors‘ ‗sensemaking‘, qualitative research is required to delve

25

more directly into both the aims of management in issuing press releases (and to whom they are

targeted) as well as the attributions investors make based on those press releases. Extending on

this observation, it remains a possibility that the evidence provided of employee involvement in

corporate philanthropy is more symbolic than substantive. Although research indicates that

investors respond equally positively to both forms of impression management (Westphal and

Zajac, 1998), some (e.g. Godfrey, 2005) have emphasized the importance of attributions of

sincerity to corporate philanthropy by the firm‘s stakeholders. Future studies could explore the

symbolic versus substantive distinction in relation to perceived sincerity more closely. Finally,

given the role of reputation in our interpretation, it may be that the reputation of the charity to

which the donations were reportedly directed (e.g. the Red Cross) also affects investors‘

interpretation. Future research may explore this potentially important piece of the puzzle.

CONCLUSION

In line with recent research aimed at uncovering the conditions under which philanthropy is

linked to firm value (Brammer and Millington, 2008; Lev et al., 2010; Muller and Kräussl, 2011;

Wang et al., 2008), we find that the value of corporate philanthropy is contingent upon

contextual factors. Our results indicate that significant value may be preserved by demonstrating

employee involvement in corporate philanthropy. We propose that this effect stems from the

signals employee involvement conveys to the market about the firm‘s sincerity and the level of

employee identification with the organization (Chong, 2009). Conceptually, our findings may

steer the debate more towards an understanding of philanthropy as a collective endeavor of

organization members, and away from philanthropy as a strategic, coordinated business decision

involving executives alone.

26

APPENDIX

Table A1: Contaminating events during donation event window

Company Date Event Allstate 9/2/2005 Agrees to pay up to $120 million to settle class-action lawsuit related to

overtime pay. American

Express 9/32005 Buys stake in Industrial and Commercial Bank of China of ca. $200 to

$300 million. Apache 9/1/2005 Announces loss of eight production platforms. Apple Computer 9/15/2005 A new video addition to existing podcasting lineup. Boeing 8/31/2005 Union talks continue; prospect of first strike in 10 years. Caterpillar Inc 9/26/2005 Caterpillar in top 5 best performers on the stock market that week. Citigroup Inc 8/31/2005 Michael Borch, from JPMorgan Chase, as managing director in European

team. Clorox 10/4/2005 Profit warning for Clorox. Coca Cola 8/30/2005 Chief marketing officer Chuck Fruit to step down at the beginning of,

2006. ConocoPhillips 8/31/2005 Stock price rises by 3.5% on oil price increases. Duke Energy 8/30/2005 Cinergy Corp names James L Turner president. Eastman Kodak 9/012005 Plans to eliminate another 11,000 jobs. Exxon Mobil 12/31/2005 Reports that oil price rise leads to stock price gains of 9.9%. Fannie Mae 9/1/2005 Accounting scandal as company could be forced to restate its earnings. Ford Motor Co. 9/8/2005 Recall of 3.8 million pickups and SUVs due to risk of engine fires. Freddie MAC 9/1/2005 Unveils a 60 per cent drop in first-half profits. Gap Inc 9/972005 Two websites which each contribute over $1 million a day remain shut

down. General Motors

Corp. 8/31/2005 Plans to close more assembly plants in North America to improve financial

performance. Harrah's

Entertainment 9/22/2005 Announces plans to raise equity up to $1 billion.

Home Depot Inc 8/30/2005 Home Depot down 2% due to rising oil prices. Intel Corp. 9/21/2005 Dropped by Microsoft as chip provider for the XBOX. Lockheed Martin 9/22/2005 UK Ministry of Defense awards contracts for armored vehicle electronic

systems. Metlife Inc 9/9/2005 National Assn of Securities Dealers to file charges for violating NASD

rules. Morgan Stanley 9/1/2005 CSFB wins mandate to underwrite China Construction Bank's overseas

listing despite resistance from Morgan Stanley. Nike 9/20/2005 Strong sales led to 32% jump in profits in the quarter for the athletic

equipment maker. Oracle 8/31/2005 CEO Larry Ellison paid nearly $7.5 million in the most recent fiscal year. Prudential

Financial 9/7/2005 Announces start of a Chinese fund management joint venture with Chinese

state-owned Citic. United Parcel

Service 8/31/2005 News report that stock price is down 1.3 per cent.

Wal Mart Stores 9/28/2005 Plans to develop shopping centers in China together with alliance partners.

27

Nearest-neighbor matching (from Abadie et al., 2004)

In nearest-neighbor matching, we consider a set of observed covariates for any firm i, Xi, letting

_x_V =(x_V x)1/2 be the vector norm with positive definite matrix V. The distance between the

vectors x and z is defined as_z − x_V, where z represents the covariate values for a potential

match for observation i. Let dM(i) be the distance from the covariates for unit i, Xi, to the Mth

nearest match with the opposite treatment. Allowing for the possibility of ties, at this distance

fewer than M units are closer to unit i than dM(i) and at least M units are as close as dM(i).

Formally, dM(i) > 0 is the real number satisfying

: 1

1 ( )l i

Ml i

l W W

X X v d i M

and : 1

1 ( )l i

Ml i

l W W

X X v d i M

,

where 1{·} is the indicator function equal to one if the expression in brackets is true and zero

otherwise. JM(i) denotes the set of indices for the matches for unit i that are at least as close as

the Mth match:

( ) 1,..., | 1 , ( )M Ml i l iJ i l N W W X X v d i

The simple matching estimator uses the following approach to estimate the pair of potential

outcomes:

ˆ (0)i iY Y if Wi = 0, and ( )

1ˆ (0)# ( ) M

i lM l J i

Y YJ i

if Wi = 1

and

( )

1ˆ (1)# ( ) M

i lM l J i

Y YJ i

if Wi = 0, and ˆ (1)i iY Y if Wi = 1

Since only one outcome can be observed per observation i, the observed outcome Yi = Yi(0) or

Yi(1) only represents one of two potential outcomes. The unobserved outcome is estimated by

28

averaging the observed outcomes for the observations l of the opposite treatment group that are

selected as matches for i. These estimates generate the simple matching estimator:

1 1

ˆ1 1ˆ ˆ(1) (0) (2 1) 1 ( )

N Nsm

i i i M i

i i

T Y Y W K i YM N N

The complete syntax (‗nnmatch‘ in STATA) is as follows: nnmatch depvar treatvar

varlist [weight] [if exp] [in range] [, tc({ate | att | atc}) m(#) exact (varlistex) biasadj(bias |

varlistadj)], where depvar is the outcome variable (donation CAR [-1,1]), treatvar is the binary

variable treatment indicator (employee involvement), varlist specifies the variables included in

the OLS regressions (Table 3), weight allows for the weighting of specified variables, if allows

for selection criteria, in allows for the identification of subsamples, tc specifies the estimand (in

our case, the average treatment effect, or ate), m(#) specifies the number of matches to be made

per observation, exact allows for exact matching on a specified covariate, and biasadj specifies

that the bias-corrected matching estimator be used.

Nearest-neighbor matching has a number of advantages over other matching algorithms

in that it allows for multiple matches. Although theoretically matching on multidimensional

covariates can lead to substantial bias, the matching approach combined with the bias adjustment

has been shown to produce estimators with little remaining bias (Abadie et al., 2004).

29

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35

TABLE 1: Abnormal Returns to Donation Announcements by U.S. Fortune 500 Firms (n =

149)a

Day Avg. t-stat Sig. positive BINOM

Overall AR-1 -0.16% -1.46 46.0% ***

AR0 -0.05% -0.51 50.7% **

AR+1 -0.01% -0.12 50.7% **

CAR [-1,0] -0.23% -1.29 48.0% ***

CAR [0,1] -0.09% -0.59 48.7% **

CAR [-1,1] -0.20% -0.88 51.3% *

Model [-1,1] 57.3%

Employee involvement NO

AR-1 -0.28% -2.11 ** 41.0% ***

AR0 -0.14% -1.07 49.0% *

AR+1 -0.14% -1.34 47.0% **

CAR [-1,0] -0.41% -1.79 * 44.0% **

CAR [0,1] -0.28% -1.47 47.0% **

CAR [-1,1] -0.56% -1.97 * 47.0% **

Model [-1,1] 56.0%

Employee involvement YES

AR-1 0.01% 0.04 55.1%

AR0 0.04% 0.21 51.0% *

AR+1 0.19% 1.02 55.1%

CAR [-1,0] 0.12% 0.44 55.1%

CAR [0,1] 0.28% 1.06 49.0% **

CAR [-1,1] 0.40% 1.25 59.2%

Model [-1,1] 63.3%

Subgroup t-test for

differences (CAR [-1,1])

-2.02 **

aAll results are Winsorized (1%)

*, ** and *** signify p<.10, p<.05 and p<.01, respectively (two-tailed tests)

36

TABLE 2: Descriptive Statistics and Correlations (n = 125)

Mean StDev 1 2 3 4 5 6 7 8 9 10 11

1 donation CAR [-1,1] 0.001 0.020 1

2 sector 0.400 0.492 0.206* 1

3 size (log sales) 0.316 0.969 -0.164 -0.059 1

4 profitability 0.322 0.948 -0.118 0.066 0.573** 1

5 Gulf Coast presence 0.670 0.471 -0.161 -0.16 0.12 0.039 1

6 DJSI-included 0.150 0.360 -0.022 0.337** 0.068 -0.006 0.011 1

7 Advertising intensity 0.215 0.851 -0.095 -0.002 0.211* .267** 0.048 0.094 1

8 R&D intensity 0.233 0.943 0.145 0.722** 0.057 0.142 -.254** .290** -0.004 1

9 Katrina-related abnormal returns -0.18% 1.1% -0.127 0.143 0.093 0.139 -0.097 0.165 0.033 0.222* 1

10 # days after landfall (log) 2.476 0.816 0.208* -0.142 -.375** -.334** -0.229* 0.064 -0.069 -0.072 -0.207* 1

11 donation / mark. cap. (normalized) 0.048 1.043 -0.035 0.011 -0.05 -0.204* 0.026 -0.037 0.063 -0.052 -0.029 0.307** 1

12 employee involvement 0.370 0.484 0.188* -0.014 0.002 0.078 -0.174 0.278** -0.037 0.04 0.009 0.243** 0.301**

*, ** and *** signify p<.10, p<.05 and p<.01, respectively (two-tailed tests)

37

TABLE 3: OLS Regression Results of Donation Announcements for CAR [-1,1] (n = 125)

Model 1 Model 2

B SE Sig. B SE Sig.

intercept -0.015 0.009 * -0.019 0.009 **

sector 0.012 0.005 ** 0.014 0.005 ***

size 0.000 0.002 0.001 0.002

profitability -0.001 0.002 -0.003 0.002

Gulf Coast presence -0.003 0.004 0.000 0.004

reputation for CSR -0.007 0.005 -0.013 0.006 **

advertising intensity 0.000 0.002 0.000 0.002

R&D intensity 0.000 0.003 0.000 0.003

Katrina-related abnormal returns -0.002 0.002 -0.002 0.002

# days after landfall 0.006 0.003 ** 0.005 0.003 **

donation value (by market capitalization) -0.002 0.002 -0.004 0.002 **

employee involvement 0.012 0.004 ***

R2 0.15 0.21

R2 (adjusted) 0.07 0.13

F-statistic 1.998 ** 2.662 ***

Significance of F change ** ***

*, ** and *** signify p<.10, p<.05 and p<.01, respectively (two-tailed tests)

38

TABLE 4: Average Treatment Effect of Employee Involvement (Nearest-Neighbor

Matching)

donation CAR [-1,1] Coefficient Std. Err. z P>|z|

SATEa 0.0097 0.0043 2.24 0.025

Matching estimator: Average Treatment Effect

Weighting matrix: inverse variance

n = 125; number of matches: 4

Matched on: sector, size, profitability, advertising intensity, R&D intensity, Gulf Coast presence,

pre-Katrina CAR, days after, donation value, reputation for CSR

aBias-adjusted estimate (all variables)