The effect of corporate governance quality and its mechanisms on firm philanthropic donations: evidence from the UK

Abstract

Purpose This paper aims to investigate whether and how better corporate governance practices can lead to philanthropic behavior among companies in the UK. In particular, this study attempts to determine whether corporate governance quality in general, as well as its specific mechanisms, affects corporate giving. Design/methodology/approach The analysis is based on a sample of Financial Times Stock Exchange All-Share nonfinancial companies. Data on firm donations, including donations amount and donations intensity, were manually collected from companies’ annual reports for the period 2018–2020. This paper uses panel data models to examine the research hypotheses. Findings The results of this study indicate that both donations amount and donations intensity are positively associated with the practice of better corporate governance. Board independence is positively associated with donations amount, but not with the intensity of donations. Furthermore, board size, board gender diversity and the establishment of a corporate social responsibility (CSR) committee are likely to have a positive impact on the amount and the intensity of firms’ donations. However, neither the chief executive officer board membership nor the audit committee’s independence is related to the firm’s donations. Practical implications This study sheds light on specific governance factors that affect firm donations in the context of UK companies. This allows regulators and legislators to evaluate the donations activities in the country and issue more directives to reinforce corporate governance practices that support corporate donations. In addition, the findings of this study are considered crucial to investors who prefer investing in companies with significant CSR-related activities to improve the value relevance of their investments. Originality/value This study provides a shred of unique evidence on the impact of corporate governance practices on firms’ donations.