Donating Money to Get Money: The Role of Corporate Philanthropy in Stakeholder Reactions to IPOs



This study examines how stakeholders' investment time horizons interact with information about corporate giving in initial public offering (IPO) firms. Specifically, we build a model that explains how corporate philanthropy affects IPO performance. We find that at the IPO-preparation stage, corporate giving is negatively related to underwriter prestige, venture capital investment, and IPO financing costs. We also find that at the IPO-issuance stage, negative media coverage of IPOs moderates the U-shaped relationship between corporate giving and market premiums. At the IPO-trading stage, we find that corporate giving only positively influences the market premiums for IPO firms that are the subject of negative media reports. Our findings contribute to the signalling theory by showing how various stakeholders interpret the same signals differently, and they have implications for understanding how the relationship between corporate philanthropy and corporate financial performance materializes in the IPO markets.