The Community Influence on Corporate Contributions

Abstract

This article uses a managerial utility maximization model in which contributions enhance both the firms’ and the top executives’ public image as well as reduce the costs of doing business by helping to maintain a propitious environment for long-run profits. Contributions also are a direct expense. From an equilibrium model we derive testable hypotheses about the effect of community characteristics on contributions. Tests are based on data from 229 large companies in 14 major U.S. cities. The key findings are as follows: (1) Corporate profits strongly and positively affect corporate contributions. (2) Most corporate giving is directed to the headquarters city rather than to operating locations. However, as firms increase their total contributions, they direct an increasing proportion to operating locations. (3) A firm tends to increase its contributions when other local firms set an example of generosity and when its size relative to the community is larger.