The gift that keeps on giving: corporate giving and excessive risk-taking

Abstract

AbstractCorporations have recently started incorporating employees’ prosocial preferences into their incentive schemes, including charitable donations (corporate giving). These donations are mainly discussed in conjunction with the external effects of a firm’s CSR strategy. However, this experiment examines the effect of donations on internal firm operations. Specifically, we investigate whether the presence and structure of corporate giving influences employees’ excessive risk-taking. Such prosocial activities may remediate misaligned incentives often cited as drivers for employees to take excessive risks. Contrary to widespread practice, our experimental evidence suggests that firms could constrain employees' excessive risk-taking by linking existing contributions to project rather than corporate performance, thus providing boundaries around an employee’s involvement in CSR initiatives. We identify project-level giving as an unexplored CSR benefit and infer that personal responsibility effectively changes an employee’s incentive package. Our findings suggest an inverted U-shape curve of effectiveness.