Shareholder reaction to corporate philanthropy after a natural disaster: an empirical exploration of the “signaling financial prospects” explanation

Corporate response to natural disaster in the forms of cash and/or in-kind donations (corporate philanthropic disaster response, or CPDR) is a growing form of corporate philanthropy. Through an event study methodology based on 1,775 firms listed on the Tokyo Stock Exchange, we analyze shareholder reaction to CPDR announcements after the 2016 Kumamoto earthquakes in Japan. Controlling for the possibility that the most common explanations (buying goodwill and corporate governance) are at play, our results provide an empirical test of a little-explored explanation for the positive shareholder reaction to CPDR: namely, that corporate philanthropy is a market signal to outside investors of the firm’s future financial prospects. We find this explanation to be significant. Of note are also the facts that shareholder reaction is only significantly positive in the case of cash donation (as opposed to in-kind), and is more positive when announced early. Overall, our results align with the “strategic philanthropy” view grounded in resource-dependence theory. But instead of the typical focus on non-financial stakeholders, we argue that philanthropic donations can be used to directly influence investors.

Remittances as aid following major sudden-onset natural disasters

There is a general assumption, based on macroeconomic studies, that remittances will rise following major sudden-onset natural disasters. This is confirmed by a few assessments involving country-specific research, and usually short-term data. This study, questioning conventional wisdom, reviewed and graphed annual and quarterly remittance flows using International Monetary Fund and World Bank data from 2000-14 for 12 countries that confronted 18 major natural disasters. It found that, regardless of event type, annual remittances rose steadily from 2000-14 except for after the 2008-09 financial crisis. Post disaster, there was a quarterly increase in the majority of cases (confirming previous research) but there was seldom an annual increase in the year of the disaster greater than the average annual increase in 2000-14. It appears that remittance senders rush to provide assistance after a natural disaster, but since their own financial situation has not changed, the immediate increase is compensated by a later decrease.