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Bereskin & Kedia: Philanthropy, Corporate Culture and Misconduct

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Frederick L. Bereskin (University of Delaware), Terry L. Campbell II (University of Delaware – Department of Finance), Simi Kedia  (Rutgers Business School) have posted “Philanthropy, Corporate Culture and Misconduct.”

The abstract is as follows:

This paper examines whether sustained philanthropic activities of firms are likely to engender a prosocial ethic and culture that is associated with less misconduct. Philanthropic activities are a manifestation of a culture in which firm reputation is important and is likely to discourage wrongdoing that tarnishes reputation. Further, corporate charitable programs might help attract and retain employees and executives with prosocial ethics who are less likely to engage in misconduct. Consistent with this notion, our paper finds that the decision to engage in philanthropic activities and the amount of giving are negatively associated with subsequent corporate misconduct. The results persist after the Sarbanes-Oxley Act and are robust to differing approaches of defining misconduct. As firm culture is a broader measure than the morals of the senior executives, our paper also examines its effect on the behavior of employees and the board. Our findings show that the culture arising from philanthropic activities is associated with greater employee whistle blowing and greater likelihood of forced CEO turnover after misconduct. These results highlight the many channels through which corporate culture affects misconduct.

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