Donations by Disaster-Afflicted Firms and Changes in Firm Value: Self-Protection and Reputation-Building Perspectives

If a firm afflicted by a disaster chooses to donate to disaster relief, how will this decision affect the firm's market value? From a self-protection perspective, diverting resources to support the public may jeopardize a firm's continuity and thereby reduce its value. Yet from a reputation-building perspective, supporting the public in need may enhance corporate reputation and thus increase firm value. In this study, we contrasted the two perspectives to develop a conceptual framework consisting of various competing hypotheses. We tested these hypotheses using data on Chinese firms’ donations to disaster relief during the first coronavirus disease 2019 outbreak. Our analysis shows that firms’ donations generally led to an increase in firm value. This was especially true for firms that were smaller or less profitable, firms that donated goods in addition to cash, and firms that donated before an increasing number of industry peers had done so. These results support the reputation-building perspective, suggesting that even when firms are afflicted by disaster exposure, their donations are still recognized as a value-adding investment. In contrast, donating a larger amount of cash and donating on an earlier day after the onset of the outbreak resulted in a lower firm value. These results align with the self-protection perspective, pointing to the need to consider resource preservation.