Value implications of charitable donations in Hong Kong

Pao Yue-kong Library Electronic Theses Database

Value implications of charitable donations in Hong Kong

 

Author: So, Wai Kwan
Title: Value implications of charitable donations in Hong Kong
Degree: M.Sc.
Year: 2014
Subject: Social responsibility of business -- China -- Hong Kong.
Business enterprises -- China -- Hong Kong -- Valuation.
Charities -- China -- Hong Kong.
Hong Kong Polytechnic University -- Dissertations
Department: School of Accounting and Finance
Pages: vi, 58 p. : ill. ; 30 cm.
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b2659393
URI: http://theses.lib.polyu.edu.hk/handle/200/7322
Abstract: This study investigates whether and how corporate social responsibility (CSR), measured by the amount of charitable donations, increases firm value of listed companies in Hong Kong. It is expected that firm value (measured by Tobin's q) would be increased by the CSR engagement because higher reputation established through CSR activities would lead to higher future sales and better future financial performance (named as numerator effect) and lower cost of capital because of reduced information asymmetry and agency problem (named as denominator effect). It finds that CSR is positively associated with firm value through the numerator effect, but not the denominator effect. In other words, listed companies in Hong Kong which donate more to charitable organizations would generate higher future sales and better financial performance than others which do not donate. However, I cannot conclude that the cost of capital would be reduced as a result of charitable donations. It means that investors and lenders would not take the CSR activities of the firms into consideration when deciding the cost of equity and cost of debt and such costs would not be reduced because of the better reputation hence resulted. Besides, this study further investigates the factors which affect the donation ability of the firms so as to see the relationship between the firms' characteristics and their donation abilities and their effect on cost of capital. The result shows that larger firms would have the ability to donate more, which is consistent with the prediction. However, the study finds that firms with lower market value would donate more, and cash flow from operations would not affect the donation level of the firms, which are in contrary to my prediction. Moreover, the study finds that firms donate more than the normal level would lead to an increase in their firm values and returns on sales due to the enhancement in firms' reputation by the extraordinary high donation level when compared with other firms in the industry which arouse the awareness of the public on the firms' CSR engagement. However, there is still no evidence to show that the cost of capital would be affected by the abnormal donation level of the firms.

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