Economic policy uncertainty and corporate donation: evidence from private firms in Korea

Department(s)

Graziadio Business School

Document Type

Article

Publication Date

1-1-2022

Keywords

Corporate donations, Economic policy uncertainty, Market competition, Private firms, Progressive party, Resource constraints

Abstract

This study examines the association between economic policy uncertainty (EPU) and private firms’ corporate donations. Based on resource constraints and the conservation of resources (COR) theory, we argue that private firms are constantly facing resource constraints and their resource conservation motive becomes apparent when EPU is heightened. Therefore, we expect that corporate donations are negatively related to EPU. Using audited corporate donations from 48,903 private firms in Korea during 2002–2019, we find that private firms’ donations are negatively related to EPU. We find that private firms operating in more competitive conditions increase their donations, but this positive association between market competition and donations is moderated by EPU. We find that private firms’ donations increased when the progressive party is in power, but this positive relationship is also moderated by EPU. Our results suggest that firms reduce their level of corporate giving to conserve resources as a precautionary saving motive when they face higher EPU. Our paper contributes to the strand of literature on corporate donations and EPU by providing evidence that EPU significantly affects private firms’ donations. We also find that firms’ strategic motives and political pressure to engage in corporate donations are moderated by EPU.

Publication Title

Review of Managerial Science

ISSN

18636683

E-ISSN

18636691

DOI

10.1007/s11846-022-00550-8

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