The effect of corporate donations on a company’s market value in a short-term perspective: An event study approach

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Faculty of Engineering, Blekinge Institute of Technology, 371 79 Karlskrona, Sweden Master of Science in Industrial Management and Engineering

June 2020

The effect of corporate donations on a

company’s market value in a short-term

perspective

An event study approach

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This thesis is submitted to the Faculty of Engineering at Blekinge Institute of Technology in partial fulfilment of the requirements for the degree of Master of Science in Industrial Management and Engineering. The thesis is equivalent to 20 weeks of full-time studies.

The authors declare that they are the sole authors of this thesis and that they have not used any sources other than those listed in the bibliography and identified as references. They further declare that they have not submitted this thesis at any other institution to obtain a degree.

Contact Information: Author(s): Axel Andreasson E-mail: axac15@student.bth.se Gustav Bergman E-mail: gube14@student.bth.se University advisor: Shahiduzzaman Quoreshi

Department of Industrial Economics

Faculty of Engineering

Blekinge Institute of Technology SE-371 79 Karlskrona, Sweden

Internet : www.bth.se Phone : +46 455 38 50 00 Fax : +46 455 38 50 57

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Abstract

Background: Societies around the world have seen an increased willingness to contribute to social

responsibilities activities. One way for corporations to commit to corporate social responsibility (CSR) have been to donate corporate assets. However, donating company assets has been questioned if justifiable. Arguments ranging from the missuses of assets to increased competitive advantage as a part of corporate strategy have been mentioned in connection to corporate donations. These different opinions have created an uncertainty of how corporate donations ultimately will affect a company’s market value.

Objective: The objective of this thesis is to distinguish if corporate donations have a significant

effect on a company’s market value.It is further examined if different amounts or recipient area of a donation significantly impacts the response to the donation. The aim is to understand if the donation amount is lost or if donating can create value for a company, possibly helping to motivate managers to donate and thus create value for our society.

Method: An event-study methodology approach was used to examine abnormal returns associated

with corporate donation announcements. Linear regressions were applied to distinguish if different donation amounts or if the recipient area played a significant role regarding how realised donation announcements is interpreted by the market.

Result: No market significance regarding abnormal returns was found connected to donation

announcements during any of the three studied event windows. The linear regressions performed revealed that the donation amounts significantly affect market reactions during a two day-period before an announcement as well as a seven day-period after the announcement day. Indicating information leakage and lagging reactions to the announcement. Recipient area was identified to not affect abnormal returns with the regressions for any of the investigated event windows. However, through an analysis of means, some specific cases where the donation amount and the recipient area resulted in a significant difference between groups were distinguished.

Conclusion: No significant punishment to donating companies was found; hence no lost firm

value was identified, indicating that the act of donating is not viewed as inappropriate by the market. Therefore, managers do not need to fear the market’s reactions when planning a corporate donation. Internal value can emerge from the act of donating, in the form of goodwill, brand image, reputation, company image, positioning or awareness. Further, it was determined that neither the donation amount nor the recipient area have a significant relation to the effect for any of the whole event windows tested.

Keywords: corporate donation, event study, corporate social responsibility, abnormal returns,

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Sammanfattning

Bakgrund: Samhällen runt om i världen har upplevt en ökad strävan att bidra till samhällsansvar.

Ett sätt som företag bidrar till detta är genom att donera sina tillgångar. Dock har användningen av företagstillgångar till detta ändamål ifrågasatts. Där argument som felanvändning av företagstillgångar till konkurrensfördel som en del av företagsstrategi har använts i samband med företagsdonationer. Dessa skilda åsikterna har skapat oklarhet kring hur företagsdonationer verkligen påverkar ett företags marknadsvärde.

Syfte: Syftet med denna uppsatts är att urskilja om företagsdonationer har en signifikant effekt på

ett företags marknadsvärde. Vidare undersöks om mängden som doneras har betydelse och om mottagarområdet påverkar den initiala reaktionen. Målet är att förstå om donationsvärdet går förlorat eller om donationer kan skapa värde för företag, vilket möjligen kan bidra till att motivera chefer att donera och på så vis skapa värde för samhället.

Metod: Event-studiemetoden används för att undersöka abnormal avkastning som förknippas med

offentliggörandet av företagsdonationer. Linjära regressioner används för att urskilja om olika donationsmängder eller mottagarområden har ett signifikant inflytande angående hur publikationen av en donation tolkas av marknaden.

Resultat: Ingen marknadstäckande signifikans beträffande abnormal avkastning observerades

kopplat till offentliggörandet av donationer under något av de tre testade eventfönstren. De linjära regressioner som utfördes avslöjar att donationsmängden signifikant påverkar marknadsreaktioner under en tvådagarsperiod innan offentliggörandet samt under en sjudagarsperiod efter annonseringsdagen. Detta indikerar att det finns informationsläckage och eftersläpande reaktioner kopplat till tillkännagivandet. Mottagarområde påverkade inte abnormal avkastning enligt de utförda regressionerna för något av de testade eventfönsterna. Däremot kunde vissa specifika fall urskiljas genom en medelvärdesanalys där donationsmängd och mottagarområde resulterade i en signifikant skillnad mellan grupperna.

Slutsats: Ingen signifikant bestraffning mot donerande företag hittades, därav är inget förlorat

företagsvärde identifierat; vilket indikerar att handlingen att donera inte anses som felaktig av investerare. Följaktligen behöver chefer inte bekymra sig för investerares reaktioner i samband med donationer. Inneboende värde kan skapas av akten att donera i form av goodwill, varumärke, rykte, företagssyn, positionering och/eller medvetenhet. Vidare kunde det fastställas att varken donationsmängden eller mottagarområdet har en signifikant relation till effekten under något av de testade eventfönsterna.

Nyckelord: företagsdonation, event-studie, företags samhällsansvar, abnormal avkastning,

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Preface

We would like to direct our gratitude towards our supervisor Shahiduzzaman Quoreshi for providing us with valuable insight and advise during our research.

We would also like to express our sincere gratitude to each other for the unwavering support, patience and hard work during this particular time.

A final and warm expression of gratitude to our opponents, Erik Bernstrup and Johanna Strand, for a thoroughly readthrough of our thesis and providing us with a lot of valuable critique and feedback to help the thesis become as good as it could possibly be.

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Nomenclature

AAR – Average Abnormal Return AR – Abnormal Return

CAAR – Cumulative Average Abnormal Return CAR – Cumulative Abnormal Return

CEO – Chief Executive Officer CML – Capital Market Line CRM – Cause-Related Marketing CSE – Corporate Social Event

CSI – Corporate Social Irresponsibility CSR – Corporate Social Responsibility EPS – Earnings Per Share

NYSE – New York Stock Exchange

NASDAQ – National Association of Securities Dealers Automated Quotations OLS – Ordinary Least Square

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List of Tables

Table 1: Business sectors and indexes included in the sample ... 25

Table 2: Descriptive statistics of sub-areas included in recipient areas and amount ranges. Low represents donation amounts below $100 000; mid represents donation amounts between $100 000-999 999 and high represents amounts above $999 999. ... 26

Table 3: Example of financial data used to calculate AR ... 28

Table 4: Describes average abnormal return (AAR), standard deviation (STD), minimum abnormal return (MinAR) as well a maximum abnormal return (MaxAR) for all days included in the measured event windows ... 28

Table 5: Number of significant cumulative abnormal returns pre-announcement, announcement day, post announcement and across the event Windows at the 0,05 level. ... 29

Table 6: CAAR across the whole market and their corresponding t-value ... 30

Table 7: 5-day event amount range regression ... 31

Table 8: 15-day event amount range regression ... 32

Table 9: 5-day event pairwise comparison between recipient areas ... 34

Table 10: 5-day event pairwise comparison between amount range within recipient areas ... 34

Table 15: List of all companies ... 50

Table 16: Linear regression Model 1: Amount Range ... 51

Table 17: Linear regression Model 2: Recipient Area ... 52

Table 18: Pairwise comparison between Amount Range, all event windows ... 53

Table 22: 5-day event pairwise comparison between amount ranges within recipient areas ... 57

Table 23: 10-day event pairwise comparison between amount ranges within recipient areas ... 58

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1 Introduction

Social responsibility commitment has become an ever-increasing focus in today’s society. Just as the general public is more aware and concerned about their social contribution, so are public corporations (Porter & Kramer, 2002). Corporate donations have for a long-time been seen as a possible way to contribute to increasing societal contribution in the form of corporate social responsibility (CSR) (Shaw & Post, 1993). However, the possible benefit of a corporate donation from the corporate perspective have been questioned for a long time; arguments stemming from the misuse of assets and neglection of profit maximization, to arguments that it is a necessity to keep competitive advantage and use as market strategy have been presented (Davis, 1973; Jensen, 2002; Zhang et al., 2010, Moore, 1995). All of these arguments will be reflected by the market reaction on the stock market depending on how it is interpreted (Martin & Moser, 2016). The differentiating opinions on corporate donation have created a stigma concerning the effect it may have on the market value of the company.

The efficient market hypothesis states that rational investors will react to new information in a way so that the market value responds directly to the new, additional information (Fama, 1965). Since the efficient market hypothesis was introduced, many scholars have been involved in investigating the impact of information regarding the movement of securities (Li et al. 2014). In reality, market participants react differently to the same news, stemming from disagreements of different viewpoints. Such disagreements can lead to discrepancies between the actual price and the intrinsic value of a security, causing noise. The volatility of the stock market is believed to originate from release, dissemination and absorption of information. This implies that new information influences investors behaviour (Li et al., 2018). This said, financial news can provide a market participant with the limited, short-lived predictive power of stock performance (Tetlock et al., 2008). In addition to this, Cutler et al. (1989) proved that approximately one-third of the variance in stock returns could be explained by macroeconomic performance news.

Previous research indicates mixed opinions regarding the usage of company capital as an incentive for corporate social responsibility from the market. Martin and Moser (2016) argue that it is true that corporate donations do not directly affect the future cash flow for the company but emphasizes that the perception of the donation from the market participants is a major contributor to how it will be received by the market. It is especially true when looking at what amount of money is donated and what social value is created (Patten, 2008; Koschate-Fischer et al., 2012; Martin & Moser, 2016). If the market participants’ perception of the contribution is negative (positive), they will respond accordingly (Groening & Kanuri, 2013).

Currently, there exists little research focusing solely on the effect of corporate donations. The ones that do focus on single specific events and how donations made from companies can be used as market strategies (Patten, 2008; Zhang et al. 2010; Muller & Kräussl, 2011). These scholars do not

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research the impact of donations made during more mundane circumstances. This highlights a gap in current literature interesting to investigate. Thus, this study aims to gain a deeper understanding of the effect of corporate donations on a company’s market value. To understand if the donation amount is lost for the company or if donating can create value for a company, possibly helping to motivate managers to donate and thus create value for our society.

The purpose of this study is to investigate if corporate donations have a significant effect on a company’s market value in a short-term perspective. This is done by observing corporate donation announcements and the connected market reactions. Additionally, we investigate if the donation amount or the recipient area relate to the short-term effect of a corporate donation.

To investigate the above-mentioned purpose an event study approach was used to see if a donation from a stock-listed corporation yields abnormal return in conjunction with a press release covering the donation. By examining 356 press releases during August 2015 to Mars 2020, donations of 138 different companies listed in The New York Stock Exchange (NYSE) and National Association of Securities Dealers Automated Quotations (NASDAQ) were assessed. The primary assumption in advance, prior to conducting the study, was that the financial value of the donation would be taken away from the company by the market in accordance with the efficient market hypothesis, introduced by Fama (1965). If significant abnormal returns are discovered by the event study, it indicates that the event significantly influenced the firm's market value (Curran & Moran, 2007).

The implication of this study’s outcome can be threefold: (1) a positive response from the market; confirming that act of donating is a value-creating activity, (2) the market do not react significantly; indicating that donating could create internal value recreated within the company in the form of goodwill, brand image, awareness, positioning and the like, or (3) the market punishes a company for donating part of its financial value; signalling a misuse of its assets in accordance with Jensen (2002).

The study begins with a deep dive into previous research on corporate donations, the media's role regarding news and its effect on the financial market, the field of corporate social responsibility and adjacent areas within the financial field. The aim is then to fully describe the research purpose and the methodology used to attain the result of the study. Concludingly, we present our result and discuss the result as well as the implications for managers and market participants drawn from our conclusions. We further identify how future research could contribute even further to this field of study.

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2 Literature Review

2.1 Related Work

The first part of the literature review presents previous research surrounding donations, corporate social responsibility and the economic effect of media. It ends with presenting how different stakeholders respond to social responsibility investments.

2.1.1 Corporate benefit of donations

The following section describes strategic benefits from corporate donations and provides possible underlying motives behind the decision to donate. It is shown that different types of donation affect our perception and awareness of a company differently.

Donations are seldom made in a sorely altruistic manner. Philanthropic behaviour from a corporation is often connected to an underlying purpose or strategy. Moore (1995) found that 94 per cent of the corporations had a strategy connected to their community involvement. Zhang et al. (2010) also proved that corporate donations is strategic, even when associated with catastrophes. They concluded that firms in more competitive industries are more likely to donate and that there exists a relationship between advertisement and donations. However, Muller and Kräussl (2011) argue that a history of negating negative impacts will provide an enhanced general perception of the company from customers compared to that of a donation linked to a solitary event, such as a disaster.

Different types of donation approaches can have varying effects on consumer perception. Fowler and Thomas (2019) point out that it is important to know which type of donation is the most effective choice for a company. They compare a regular donation towards pay-what-you-want donation, e.g. having a collecting box at a counter where customers can choose on their own how much to give. They found that pay-what-you-want potentially provides a more generous benefit for the company in terms of customer perceptions. Another type is cause-related marketing (CRM), a type of conditional marketing strategy; which is an agreement made between a company and consumer where the company will donate upon a revenue-producing transaction. This type of donation might be viewed in another light compared to an unconditional donation. Dean (2003) found that the average firm could benefit in the eyes of consumers by pursuing an unconditional donation and concluded that the average firm does not stand to risk any harm to the company's goodwill by using CRM.

Social responsibility is believed by firms to contribute to increased growth in regards to long-term performance, meaning it serves in a firm’s self-interest. The practice of social responsibility may help the relationship between a firm and its customers, but it is not the most crucial factor when a

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consumer decides to buy or not. Dean (2003) indicates that it might, however, be the tipping point when a consumer is deciding between two equal, competing, products. Zhang et al. (2010) agrees with Dean (2003) and shows that more competitive industries and markets are more likely to donate and therefore hedge against their competitors.

Porter and Kramer (2002) emphasize the importance of using donations as a tool to improve the long-term business prospect in the areas of operation, thus increasing the competitive advantage. This has been shown to increase social benefits more than other forms of donations. Porter and Kramer (2002) argue that in order for companies to increase the efficiency of their contributions, a focus change is needed. It is only when the corporation has both economic and social gains through the donation activities, it will become relevant for the company as well as for the owner. Corporate donations, in the form of CRM, can provide the following benefits: (1) the creation of goodwill, (2) differentiation from competitors, (3) consumers becoming more willing to accept price increases, (4) increased morale within company, (5) increased interest from job seekers, (6) defence against public criticism, (7) aiding lobbying and (8) increased revenues and profit (Dean, 2003). Guzavicius et al. (2014) agree with Dean (2003) and further states that a socially responsible business helps to keep skilled employees within the company, increase their general perception of the corporation and inflict loyalty.

Further, donations can help mitigate consumers' perception of a company's product and actions. In line with this, previous studies have shown that price increase during a CRM campaign can be beneficial (Koschate-Fischer et al., 2016). Minton and Cornwell (2016) describe the same goal as to be improving brand image and goodwill. They confirm that CRM increases brand image. However, it is commonly misinterpreted by consumers that a non-profit organisation supports the product and behaviour itself of its for-profit organisation partner, which is not a given.

Contrary to the critique of corporate donations, scholars argue that through corporate philanthropy companies are engaging in a long-term profit maximization towards its owners through strengthening its image, reputation and goodwill (Shaw and Post, 1993; Stendardi, 1992). The company has an essential role in society and obligations to follow rules that increase public welfare. Shaw and Post (1993) argue that corporate philanthropy increases social welfare, good citizenship and argue that a good investment opportunity lies within everyone's interest; from manager and CEO to owners of the company. Stendardi (1992) agrees with Shaw and Post (1993) and further explains the idea of corporate contributions in many ways has gone from a corporate liability to become a necessity in order to keep a competitive advantage in the emerging global environment.

Guzavicius et al. (2014) found that portfolio and fund managers are recognizing the importance of socially responsible investments and have seen an increased willingness to invest in socially

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responsible businesses. Casais and Santos (2018) describe that the main motives for managers donating to charities involve “creating financial value through positioning and awareness”. This is in line with Zhang et al. (2010) conclusion of the underlying motivation for corporate donations; that the intention is to establish a reputation and to create economic value for shareholders.

2.1.2 The economic impact of mass media

The following section describes the impact media has on the financial market. How information presented in the media has high importance upon the reactions it creates. News are reported differently which in turn is interpreted in various ways by the market, which is believed to cause noise in the stock market.

Mass media has a strong influence on the financial market (Engelberg and Parsons, 2011; Shiller, 2000). News media carries strong public credibility and is widely spread. Shiller (2000) presents the perspective of media towards the financial market, explaining that media have a significant effect on the stock market; both before, during and after news announcements is made. Media are constantly in need of interesting news to keep their audience at ease. To achieve this, media may exaggerate, in either a negative or positive fashion, the relevance of the news. This exaggeration is often done at the cost of accuracy, presenting misleading facts (Ahern and Sosyura, 2015). Shiller (2000) explains that the media thrives on the general public's beliefs of the stock market, a place where you can make it or break it. A perspective media is well aware of, and uses to their benefit. Historically external information or mass media have a higher impact on investors decision making compared to inherent assets evaluation. However, the reactions to mass media are asymmetric, and thus is the impact of news reports (Yang et al., 2017).

Similar findings are done by Kim and Verrecchia (1994), they further emphasize that new information might increase information asymmetry due to investors inability to interpret the information presented to them. This could mean that a donation made in a declining market is exposed to more volatility depending on the market participants’ sentiment towards it; if they see it as positive or negative for the firm, it could either help to turn the tide or further contribute to the meagre performance.

Guzavicius et al. (2014) explain that an investors’ emotions, illusions and other factors all lead to “irrational” decisions. These physiological factors affect us differently, leading to different decisions. Meaning that market participants react differently to the same news, stemming from disagreements of different viewpoints. Such disagreements can lead to discrepancies between the actual price and the intrinsic value of a security, causing noise. The volatility of the stock market is believed to originate from release, dissemination and absorption of information. This implies that new information influences the market participants’ behaviour (Li et al., 2018). With this said, financial news can provide a market participant with limited, short-lived predictive power of stock

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performance (Tetlock et al., 2008). In addition to this, Cutler et al. (1989) proved that approximately one-third of the variance in stock returns could be explained by macroeconomic performance news.

Several scholars have investigated if media coverage of a financial event affects investors' behaviour (Cutler et al., 1988; Engelberg and Parsons, 2011; Peress, 2014). Engelberg and Parsons (2011) varied the information while covering the same event to investigate to what extent the news information affected market participants. Previous studies have examined the same thing in a different area, giving different households access to different sources of news, finding that this altered their political attitudes; identifying an impact from the media. Engelberg and Parson (2011) aimed to identify the same effect on the financial market. In their study, 19 cities were covered, each depending on the local newspaper, which all reacted differently to earnings announcements. Depending on how this was covered by the local newspaper, a strong relationship between the coverage and the trading activity was found, increasing trading volume from 8% to nearly 50%, varying with different specific events.

One example of such an event is highlighted by Engelberg and Parsons (2011) concerning a local firm in Detroit; a local report about an increase in earnings per share (EPS) from $1.06 to $1.16 in one quarter compared to the previous year, and one not locally covered increase from $0.80 to $1.56 EPS in another quarter. The first, lower increase, was affected by 21% higher trading volume during the first three days of trading after the first announcement, compared to the second, higher increase, which was not covered by local media. The same findings were done by Peress (2014), who also investigated the systematic effect from mass media, who proved that mass media also affects the return of the company. The problem after finding this is to conclude just how much of this difference is because of the media. A problem Cutler et al. (1989) sought to find out in their investigation. They denied that security movements are fully reflected by news announcements as many of the securities had days with significant market movement without the occurrence of news. However, it could be concluded that about a third of the variance observed are explained by the appearance of news.

Chen et al. (2013) found that coverage in media does affect stock prices; increased media coverage concerning a specific firm increased the traded volume of the company’s stock. Some announcements can be controlled by firms and distributed when best suited for the firm. Dyck and Zingales (2008) identified a strong influence from media on corporate decision making. Discoveries by Tsileponis et al. (2020) reveals that a greater occurrence of news articles about a company leads to greater abnormal returns. They imply that managers fight over the news media's attention to increase the number of reports about their specific company, ultimately leading to the conclusion that companies affect news output and not only the other way around. The usage of media coverage by managers is a typical example of driving forces within a firm to strive after value maximization, as presented by Jensen (2002).

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In our modern era, the internet has grown to play a massive role as a source of information. Through the internet, investors can quickly access valuable and timely information (Li et al., 2018). With extensive dissemination and easy access to specialised knowledge, it has become a tool to solve the problem of information asymmetry between market participants and corporations (Li et al., 2014). In addition to the news itself, other sources of information have also sprung forth from this; various forms of social media, where everyone can share their thoughts regarding the news on comment sections, blogs, tweets, discussion boards and more. However, with such a big influence from users, misinformation can easily be spread, and misleading reports, deviating from the truth emerges. In this aspect, mass media sometimes fail to deliver news accurately, and can thus result in misleading market participants' decisions (Li et al., 2014; Li et al., 2018).

2.1.3 Stakeholder response to social responsibility investments

The following section aims to elaborate on stakeholders’ assumptions, perception and attitude towards corporate social responsibility. How managers disclose, emphasize and present information regarding this topic. As well as the response that follows from stakeholders when corporations commit to socially responsible investments.

Corporate donations offer no apparent impact on future cash flow for the donor (Martin & Moser, 2016). Groening and Kanuri (2018) claim that corporate social irresponsibility (CSI) activities can directly affect the future cash flow and that it can also affect the social standing of a company negatively. CSR activity communicates to the market that stakeholders' perspective is considered, improving the social perception of the company (Groening & Kanuri, 2018). Managers anticipate the market’s reactions when disclosing a CSR investment. Because of this, they emphasise the societal benefit, as opposed to focusing on the cost for the company, as the market respond more positively to this. Additionally, the market response is more positive to a release about the investment than no report at all (Martin & Moser, 2016).

Managers tend to withhold information concerning the exact amount of big investments connected to social responsibility as they fear the market will view large investments in such areas as unfavourable. However, smaller amounts are more commonly disclosed, and these amounts are actually more positively viewed by the market the larger they are (Martin & Moser, 2016), which is consistent with Koschate-Fischer et al. (2012). Further, Martin and Moser (2016) provide evidence which suggests that managers sometimes tend to overinvest in socially responsible causes and that this may stem from them acting in society’s interest instead of their own or their company’s. From a value-maximization perspective, such overinvestments are viewed as an agency problem, as it does not contribute to increased value for the shareholders. However, it is not necessarily a negative act to invest in society’s interest from a stakeholder perspective. Koschate-Fischer et al. (2012) discovered that the amount donated affects consumer perception of the donation and their willingness to pay. This relationship is concave. Each additional

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contribution to the donation is worth less as the size of a donation increases to higher levels. Further examining customers purchase behaviour, customers with a positive attitude towards helping others will display a higher willingness to pay for a donating company. Consumers buying hedonic products might display a higher effect from increased donations due to emotion-driven feelings, i.e. buying such a product might increase pleasure and reduce feelings of guilt. Utilitarian products do not show the same effect on consumers. Koschate-Fischer et al. (2012), therefore, propose the existence of a ceiling effect on the amount of donation, that could differentiate in the separate cases of hedonic versus utilitarian products.

In an event study by Patten (2008), “results indicate a significant positive reaction” on the market towards announcements of corporate charitable contributions. With evidence pointing towards bigger donations receiving amplified reactions compared to smaller donations, also recognised by other studies (Koschate-Fischer et al. 2012; Martin & Moser, 2016). In the study by Patten (2008), no negative abnormal returns were found connected to a firm’s donation intention; demonstrating the market did not penalize for donations made. This indicates that donating potentially is a value-creating activity, since the firm value does not decrease from spending that money, while the recipient receives the donated amount, leading to a greater value post-donation. The fact that the market do not penalize donations might help convince unwilling managers currently reluctant to donate, leading to them becoming more willing to consider donating.

CSR directed towards a firm’s primary stakeholders such as employees and customers is possibly viewed by the market more positively, as it can be considered more strategic and financially viable; as a firm operating in its self-interest. Contrarily, CSR directed towards the likes of environmental and community groups are often viewed as less essential by the market as the connection to the firm’s performance is vague, and play no essential role in a firm’s survival (Groening & Kanuri, 2018). Porter and Kramer (2002) also separate activities affecting the internal value chain and external stakeholders, implying that the area of donation can play a vital role.

Stakeholders and shareholders can have contradicting views on what is important for a company to focus upon. In a large study, analysing over 1000 datasets from corporate social events, Groening and Kanuri (2013) found differentiating responses in almost half of the cases from stakeholders and shareholders connected to such events. They identified positive events as “adding CSR or removing CSI” and negative events as “adding CSI or removing CSR”. In some cases where stakeholders viewed positive events in a positive light, shareholders did not reward the firm and could even punish it. Similarly, when stakeholders viewed negative events in a negative light, shareholders could react positively and even reward the firm. The reason for this might be as a firm’s financial performance increase; shareholders may view such positive events as unnecessary and show this by punishing the firm value, indicating that its resources could be used more superiorly, leading to the conclusion that investing in positive corporate social events is not always beneficial.

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“The definition of CSR in the marketing context has evolved from a unidimensional approach of ethicality and philanthropy to more holistic stakeholders’ approach” (Chakraborty & Jha, 2019). One principal explanation for this could be the increased role of CSR in marketing purposes. Chakraborty and Jha (2019) recognize the fact that CSR has been driven towards the purpose of generating value for a company’s stakeholders, but emphasizes that the primary focus area researched has been the relationship between company and customer. A relationship between a strong reputed company and a non-profit organization can lead to the increased perceived effectiveness of the non-profit organization. This can initiate more activity from consumers towards the non-profit organization, realizing more efficiency. Likewise; if a firm with a weak reputation starts a relationship with a non-profit, it will positively amplify the perceived company motives by consumers (Irmak et al., 2015).

So, from a for-profit organization perspective, a firm with a weak reputation will receive higher benefits from an alliance with a non-profit organization than a firm with a strong reputation. Irmak et al. (2015) suggest a possible explanation for this is that consumers' assumptions of a company are directly influenced by its aspirations. Iqbal et al. (2014) prove a positive relationship between CSR and financial performance. They argue that societies' payback to donations comes in the form of improved goodwill, reputation and company image. In line with this, they suggest that every company should develop a CSR policy that favours not only society but the company itself. On the Contrary, Surroca et al. (2010) could not find a clear relationship between a company's CSR activities and their financial performance and explained that previous studies that found a relationship had not dismissed the mediated effect of intangible resources.

Yin et al. (2019) found that a CEO’s donation affects the customer perception of his/her company more than a donation from the company itself, indicating a connection between the CEO’s donation and the company’s profit. This stems from consumers paying more attention to the CEO’s donation than that of the company. Thus, Yin et al. (2019) suggest tailoring a donation strategy for the company’s CEO in accordance with his/her traits. Paul Dunn (2004) found that corporations are more likely to engage in a donation program if the manager acts as a volunteer for the charity.

2.1.4 Summary of related work

Summarizing the related work shows that:

• Corporate donation can provide benefits for the donor in terms of goodwill, differentiation, image and more, implying that the act of donating can internal value.

• Mass media have a significant effect on the stock market; both before, during and after news announcements is made.

• If a donation does not increase value for the company, it is viewed as a misuse of assets from a value-maximization perspective. However, it is not necessarily a negative investment from a stakeholder perspective, as it acts in society’s interest.

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• Managers do not always disclose the amount of investments concerning social responsibility as they fear a negative reaction from the market. However, when the amounts are disclosed, the market shows a more positive response the larger they are.

2.2 Theoretical Framework

The second part of the literature review presents the conflicting views of value-maximization and stakeholder theory. This is followed by the efficient market hypothesis, which is connected to the predictability and movement of stocks.

2.2.1 Value-maximization and stakeholder theory

In this section, we present the conflicting interests that may occur between stakeholders (principal) in the company and the corporate managers (agents) and their responsibility towards the company's future survival. We identify different corporate standpoints toward management and how corporate donations is perceived.

Following the definition of agency relationship from Jensen and Meckling (1976): “one or more persons (the principal(s)) engage another person (the agent) to perform some...decision making authority to the agent”, there are several reasons why corporate donations in the view of social responsibility are seen as an agency cost. Jensen and Meckling (1976) explain that through a higher degree of dispersed ownership, the greater the risk of an agent deviating from a value-maximizing decision and thus inflicting a higher agency cost. Philanthropic behaviour is, therefore, seen as neglecting profit maximization towards its shareholders (Davis, 1973). Porter and Kramer (2002) argue that many of the charitable initiatives taken on by companies are poorly thought through and seldom contain a long-term goal that generates increased welfare, thus, ending up causing the company more damage than benefit.

Jensen (2002) recognizes the objective of a firm as a long-term value maximization. Value maximization does not provide any implications of how to run a firm to increase value. It merely provides a measure for how well the actions of a driving force within the firm will contribute towards the creation of value. Further, Jensen (2002) states that when all firms in an economy strive towards value maximization, it will also bring the maximization of social welfare (excluding the existence of monopolies or externalities). This stems from a firm’s value being decided by how it is perceived by the consumers; the firm value increases as its consumers place a higher value in its output. “The real issue to be considered here is what firm behaviour will result in the least social waste—or equivalently, what behaviour will get the most out of society's limited resources—not whether one group is or should be more privileged than another” (Jensen, 2002).

A firm is dependent on the interaction between all parties that are somehow interested in the firm's activities, i.e. its stakeholders. Stakeholder theory addresses ethical and moral values as an

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essential characteristic of organizational management. It describes who and what is important to know for managers and firms. To become successful and maintain success, a firm must preserve its interest with everyone involved. Freeman (1984) argues that if all stakeholders move in the same direction, it should be evident that it derives most value for a firm. Hence, a manager should seek to find how to do this. Jensen (2002) argues against this and emphasizes that a firm can only optimize one aspect at a time. However, stakeholder theory does not provide managers with a method for decision making. In defence of this, Phillips et al. (2003) argue that it is impossible to provide a framework due to the many differentiating ways various organizations are built. Hence a specific framework cannot fit every firm. In contrast, it does provide managers with a method of how to derive stakeholders' influences and expresses how managers must make all these stakeholders' interests as a part of decision making.

With this in mind, Freeman (1984) provides no specifics about the trade-off that is needed to add value to a firm. Jensen (2002) considers this approach damaging to both firms and social welfare. The connection between them is that Jensen’s value-maximizing proposition measures and evaluates the performance, while the stakeholder theory determines where to derive the value from, and what ought to be measured. A firm specialised in profit maximization will outperform a firm driven by stakeholder theory in a competitive environment (Jensen, 2002). It is further explained that the stakeholder theory is probably chosen because of short-term interest and the decision-making power it offers to managers.

Sternberg (1997) states that stakeholder theory is not even compatible with business, and further claims that stakeholder theory impedes business and that the objective of stakeholder theory is unrealistic. It explains what counts as a stakeholder and why a stakeholder is important, but it does not explain how vital one aspect contrasts with another, or how managers should know what stakeholders define as benefits. It is not easier to interpret when one knows that benefits are viewed significantly differently from various stakeholders’ viewpoints. Even if all relevant benefits were known, the stakeholder theory still provides no course of action to shape a balance between them. Sternberg (1997) even notes that one benefit could even be harmful to another, which is in line with Jensen (2002), declaring that only one focus can be maximised at the same time. However, Sternberg (1997) admits that some benefits can be derived from stakeholder theory. A firm cannot afford to overlook their stakeholders if they seek to achieve long-term value. Stakeholder theory reminds firms’ to always think about those who can affect, or are affected by, the firm, i.e. its stakeholders. It is essential to consider when aiming to achieve the firm’s objectives, but also to understand if their actions are ethical.

The financial crisis of 2008 proves that a modern business needs to focus on more than just money, profits and shareholders. It needs to focus on purpose and its stakeholders; about creating value for each other and the trade; money and profits will follow (Freeman & Moutchnik, 2013). With

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this underlying assumption, that a business is about value creation for its stakeholders, Freeman and Moutchnik (2013) argues that corporate social responsibility (CSR) is superfluous, meaning that CSR should not require an explanation separately from a firm’s business model. A successful business is a business engaged with all its stakeholders. Ethical and social concerns are significant for profit and should, therefore, be included in the business model instead of viewing it as a complementary objective. Moore (1995) found evidence that the market, in many cases, take the idea of community investments in the form of donations and contributions for granted.

Every investor has a unique risk preference upon which they base their investment decisions on. A rational investor will seek to maximize return while simultaneously aiming to minimize risk (Markowitz,1952). A rational investor will therefore not want to see an increased risk of their assets to the same return rate, as it will deviate from the efficient frontier (Sharpe, 1964). A rational investor will view a corporate donation as unnecessary, and exclude the asset in once portfolio, if the value does not increase within the company (Jensen, 2002).

2.2.2 Efficient market hypothesis & random walk theory

The following section describes the movement and predictability of securities. It provides the theoretical groundwork and understanding of how corporate donation announcements will be interpreted into the stock market and what may affect it.

The ability to interpret information and predict behaviour has always been a tool to better prepare and gain an advantage over situations. The ability to understand movements and patterns on the stock market has always been fascinating to economic researchers. In financial terms, Fama (1965) explains the random walk theory as a theory where the future price of a security cannot be predicted through the analysis of its previous history. It is independent of past price, implying that the security does not have a memory and, therefore, is not able to predict future movement. Fama (1965) could through the analysis of the Dow-Jones Industrial Average conclude that there is strong evidence that points towards the presence of the random walk theory on the stock market. Even though the majority of scholars agree with Fama (1965), there are still disputes over the total acceptance of the theory and proposal of alternative theories.

The opposed opinion regarding the predictability of the stock market led to the development of the efficient market hypothesis presented by Fama (1970). The efficient market hypothesis states “that security prices at any point in time ‘fully reflect’ all available information.” (Fama, 1970). With the term, “fully reflect” Fama (1970) implies that every market participant has the same opportunity, ability and informational asset to set a future price of each security.

Fama (1970) categorised the efficient market hypothesis into three main categories; weak-, semi-strong- and strong form efficiency; to adequately explain the reflection of the information in the securities price. The first degree; referred to as the weak form, embraces the theory of random

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walk and claims that historical trends, volume and data does not affect the future price of the stock. The second degree; semi-strong form efficiency, claims that the market rapidly reacts to public-available news that affects the market and adjusts the price of the stock accordingly. To further increase the validity of the efficient market hypothesis and the semi-strong form efficiency, Fama (1998) studied the effect of new information released and the reaction from the market. He concluded that the market overreacts as often as it underreacts. Thus, the unsystematic occurrence of these events further emphasizes the efficient market hypothesis. The final degree; strong form efficiency, argues that even private information is accounted for in the stock price. Fama (1970) concluded through extensive research of the three degrees of efficiency that little evidence against the efficient market hypothesis exists and implies that it is a good approximation of the real stock market behaviour.

Malkiel (2003) agrees with Fama (1970) and has investigated some major critiques against the efficient market hypothesis. He could conclude that even if there are certain patterns and irregularities in the market during specific periods, the efficient market hypothesis still holds. Malkiel (2003) explains that it would be rather strange if anomalies and patterns did not occur in stock markets. He emphasizes that if the market were perfectly efficient, there would not be any incentive for people to gather valuable data, as there would exist zero arbitrage opportunities. This idea is further explained by Grossman and Stiglitz (1980), they argue that the only way for market participants to generate a return through information gathering is to trade on positions that are more “favourable” than a uniformed market participant. Grossman and Stiglitz (1980) emphasise that this is only possible in an inefficient market, and information is costly; otherwise, the competitive advantage would be non-existent.

Timmermann and Granger (2004) does similar findings as Grossman and Stiglitz (1980) and argues that an inefficient market strives to become efficient, e.g. through seizing arbitrage opportunities. Through action, existing patterns will self-destruct when exploited by more market participants and therefore be included in the “fully reflected” efficient market explained by Fama (1965) over time.

The efficient market hypothesis states that rational investors will react to new information in a way so that the market value responds directly to the new, additional information (Fama, 1965). Since the hypothesis was introduced, scholars have questioned the rationality of market participants that is required to make decisions on the stock market correctly (Li et al. 2014). Thaler (1980) explains that there exist particular circumstances where the behaviour and logic of market participants does not follow the classic economic theories. Several of these concerns about the efficient market hypothesis have, under a longer time, sprung forward from the academic field of behavioural finance, explaining the why and how of the financial market’s inefficiency through the stimulus of phycology, sociology and other sciences (Sewell, 2007). Behavioural finance tries to explain

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the irrational decisions made by market participants and how these may be affected through irrational factors such as emotions and illusions (Guzavicius et al. 2014; Garcia, 2011).

2.2.3 Summary of theoretical framework

Summarizing the theoretical framework shows that:

• Value-maximization measures the performance of a firm’s objectives, where philanthropic behaviour is seen as a neglection of profit maximization towards its shareholders.

• A firm can not afford to overlook their stakeholders if they seek to achieve long-term value. It is essential to consider how stakeholders are affected when aiming to achieve the firm’s objectives.

• The efficient market hypothesis states that the market value reflects all available information and that rational investors will react to new information in a way so that the market value is adjusted directly to the new, additional information.

•_{Irrational investor in the stock market take emotions into consideration when investing,} leading to different decisions on the stock market.

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3 Purpose

The following chapter describes the research purpose and the hypotheses developed to answer the constructed research questions.

The literature review offers valuable knowledge through previous studies surrounding the topic of corporate donation. This gives great support in comprehending diverse aspects associated with the identified gap of knowledge. Existing scholarly articles were covered to obtain a deeper understanding of the relevant areas. By investigating methods and results from such studies, the objective was to understand what was not yet covered and a possible method to obtain that knowledge. As mentioned in the literature review above, previous studies in the area focus primarily on the long-term effects connected to corporate donations and its correlation to corporate value (Houqe et al. 2019), on specific events, or how donations made from companies can be used as market strategies (Patten, 2008; Zhang et al. 2010; Muller & Kräussl, 2011). This leaves a gap in the literature to understand if there exists an effect from corporate donations on a company’s market value in a short-term perspective. There is none, to our knowledge, previous study investigating this effect during more mundane circumstances. This leads us to the formulation of the following research question:

Research question 1: Do corporate donations have a significant effect on a company’s market value in a short-term perspective?

As Fama et al. (1969) describe; an efficient market will consider all available information, and as new information arises, the market will respond rapidly to it, which will be reflected in affected securities. Thus, as corporate donations announcements are released, this should immediately be reflected by movement in the share price (Rose, 1985). Several scholars have conducted research pointing towards that CSR and activities connected to social responsibility, such as donations, can have positive effects for a firm and is recognised as a motivation for managers to participate in social responsibility (Dean, 2003; Patten, 2008; Minton & Cornwell, 2016; Groening & Kanuri, 2018; Chakraborty & Jha, 2019). Media coverage can highly affect the stock market activity and thus, the traded volume of a security (Engelberg & Parsons, 2011; Chen et al., 2013). Media also has an impact on the return of the company (Peress, 2014; Tsileponis et al., 2020). Kim and Verrecchia (2018) explain that information presented by the media is interpreted differently depending on whoever reads it, and according to Li et al. (2018), it contributes to shaping how market participants behave. We, therefore, anticipate the market to adjust the value of a donating firm, reducing the firm value equivalent to the amount that was given away, after a news announcement. Because of this, it is relevant to examine if the market reaction to a news announcement regarding donations specifically will reflect in a significant change in corporate market value. To test research question 1, we formulate the following hypotheses:

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H10: A corporate donation news announcement will have no significant effect on a company’s market value in the short-term perspective, in regards to abnormal return.

H1a: A corporate donation news announcement will have a significant effect on a company’s market value during the pre-announcement period, in regards to abnormal return.

H1b: A corporate donation news announcement will have a significant effect on a company’s market value during the announcement day, in regards to abnormal return.

H1c: A corporate donation news announcement will have a significant effect on a company’s market value during the post-announcement period, in regards to abnormal return.

H1d: A corporate donation news announcement will have a significant market effect on a company’s market value during the event window, in regards to abnormal return.

It is a given fact that managers are always supposed to act with the best intention for the company. They should use the company money where it is put to the best use and can be as efficient as possible. The amount of money used within donation can be rather complex. The market can punish a company for taking parts in events which stakeholders view as positive, motivating it by them being unnecessary for the firm’s financial performance (Groening & Kanuri, 2013). Managers do not always disclose the exact amount regarding a social responsibility investment because they fear that the market will view it negatively (Martin and Moser, 2016). These statements imply that the market view larger investments more negatively and might thus punish the firm more, depending on the donation amount. We, therefore, want to investigate the impact of different donation sizes on the effect from a corporate donation. We formulate this into the follow research question:

Research question 2a: Do the donation amount relate to the short-term effect of a corporate donation?

To test research question 2a, we formulate the following hypotheses:

H20: The size of a corporate donation will not contribute to a significant difference in abnormal returns during any of the periods in the event window.

H2a: The size of a corporate donation will result in a significant difference in abnormal returns during the pre-announcement period before the news announcement.

H2b: The size of a corporate donation will result in a significant difference in abnormal returns during the announcement day connected to the news announcement.

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H2c: The size of a corporate donation will result in a significant difference in abnormal returns during the post-announcement period following the news announcement.

H2d: The size of a corporate donation will result in a significant difference in abnormal returns during the whole event window connected to the news announcement.

Zhang et al. (2010) argue that corporate donations often is connected to a corporate strategy and not made only to benefit the recipient, even in the worst of crisis. Patten (2008) showed that corporations experienced a positive cumulative abnormal return over five days, only focusing on a single type of recipient area, namely disasters. It was noted in the study that disasters received greater amounts of media attention compared to other recipient areas. Engelberg and Parsons (2011) explained that greater media attention could severely affect the trading volume stemming from media. Further, Guzavicius et al. (2014) explain that emotions, illusions and other factors all lead to “irrational” decisions. These physiological factors affect us differently, leading to different decisions.It is therefore interesting to look at if these investment decisions are affected differently depending on which recipient area the donation is directed towards. Hence, the effect of recipient areas is investigated by the following research question:

Research question 2b: Do the recipient area of a donation relate to the short-term effect of a corporate donation?

To test research question 2b, we formulate the following hypotheses:

H30: The recipient area of a corporate donation will not contribute to a significant difference in abnormal returns during any of the periods in the event window.

H3a: The recipient area of a corporate donation will result in a significant difference in abnormal returns during the pre-announcement period before the news announcement.

H3b: The recipient area of a corporate donation will result in a significant difference in abnormal returns during the announcement day connected to the news announcement.

H3c: The recipient area of a corporate donation will result in a significant difference in abnormal returns during the post-announcement period following the news announcement.

H3d: The recipient area of a corporate donation will result in a significant difference in abnormal returns during the whole event window connected to the news announcement.

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4 Method

The following chapter describes and motivates the methodology used in the study to obtain our result and the operationalization of variables. It is concluded by presenting the analytical tools used to analyse the sample data.

4.1 Event study

An event study is used to capture the market reaction before, during and after a particular event, in this study; corporate donations. The donation announcements are interpreted according to Fama (1970), and the idea of the efficient market hypothesis, to fully explain the effect of a donation through the identification of positive (negative) abnormal returns in the stock market.

Previous studies on adjacent subjects have been conducted with the support of various differentiating models and methods (Aouadi & Marsat, 2018). One such recurring method is the event study methodology. The goal of an event study is to identify an effect caused by a particular event. “A number of robust results have been developed from event studies of financing decisions by corporations” (MacKinlay, 1997).

In the past, event studies have been successfully used in adjacent subjects, inter alia to investigate the market reactions to corporate charitable contributions (Patten, 2008), and to understand under what circumstances stakeholders and shareholders react similarly towards positive or negative CSE’s (Groening & Kanuri, 2013). “Event study is the most suitable method for studying the market reaction to certain informational announcements” (Zhang et al., 2014).

In this study, the event study approach was used to evaluate the impact of how the market react to donations in a news context, using stock data and press releases. An event study intends to recover if fluctuations exist within a dataset to bestow a researcher with evidence of the existence of abnormal returns correlated to an event, which in this study would be donations. By analysing the data, it can be incorporated if the market participants believe the donation to be of any significant importance for the related company or not. If significant abnormal returns are discovered by the event study, it indicates that the event significantly influenced the firm's market value (Curran & Moran, 2007).

Abnormal Returns (AR) signify the difference from comparing returns from independent security to the return of a more extensive sample of securities (Brown & Warner, 1985). In our study, each company’s return is compared to the corresponding market sector index. The abnormal return represents any significant, positive or negative, deviation from the normal return that can be interpreted as the value of the new information presented. MacKinlay (1997) states that the observations of the abnormal return must be aggregated into the cumulative abnormal return

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(CAR) to be properly interpreted, as tests with only one event are unlikely to be useful. Stemming from the fact that stocks tend to be noisy; indicating market inefficiency. The concept of a cumulative abnormal return is necessary to understand the overall event of interest accurately. It summarises all the returns during the event window, providing an accurate assessment of the stock performance throughout the entire event window.

When conducting an event study, the first step is to decide which event to investigate. This event is referred to as the event window. It is of utmost importance to determine the exact date of the actual event (MacKinlay, 1997). When choosing the length of an event window, there is a trade-off made. A longer event window will have a bigger chance of capturing the total effect of the event, as some reactions might be delayed or might occur from information leakage. However, a longer event window will also contain more noise. Additionally, the risk of measuring other events will increase with the size of the window. A smaller event window will reduce the risk of capturing the noise that appears in stock data. An event study that focuses on a short event window has been proven to provide evidence of the effect of the announcement on managerial decisions (Kothari & Warner, 2006).

The fact that the information might have been absorbed by a part of the market preceding a press release makes it essential to check for information leakage before the event itself. Therefore, we check for abnormal returns the days before the press release. Fama et al. (1969) found evidence pointing to that the market is likely to have a nearly immediate reaction following the announcement date. Further, Shiller (2000) explains that the stock market is affected by media before, during and after a news announcement. It is therefore vital to capture the days surrounding the announcement day, both before and after, to fully capture the effect of the announcement.

Aggregating the daily returns over the event window will also lead to substantially reducing the noise that appears (Rose, 1985). In line with this, we chose a short event window and to aggregate returns over the event window to reduce noise, while simultaneously allowing us to capture the majority of reactions from information leakage and latecomers, as well as to minimise the risk of not isolating the right effect properly; in consistency with previous studies (Nakai et al., 2013; Curran & Moran, 2007).

We chose to construct multiple event windows to identify if a continuing effect exists or if the effect is, in fact, close to immediate in accordance with Fama et al. (1969). By studying the adjacent days to the event day, one can understand if there exist any abnormal returns resulting from information leakage or stragglers. If the market reaction is immediate, there should be no difference in the abnormal return connected to the event windows of different sizes. One event window consists of five days, two days before the event, one day representing the event itself, and two days after the event day. The second event window consists of ten days, four days before the event, one day representing the event itself, and five days after the event day. The final window

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contains fifteen days, seven days before the event, one day representing the event itself, and seven days after the event day. Even if corporate announcements often are somewhat protected from information spread, it is relevant to investigate adjacent days from the event (Binder, 1998). After the size of the event windows has been decided, the size of the estimation window is in turn determined. The estimation window is used to calculate the expected return during the event window, had the event not been realised, which is then compared to the realised return to uncover if any abnormal returns exist (MacKinlay, 1997). In our study, the estimation window consists of one year worth of trading data, corresponding to 252 trading days, before the event window. Any dates included in the event window itself are not included in the estimation window. For comparison reasons, it was chosen to specify the days around the events numerically as opposed to dates or weekdays, e.g. the event day is referred to as “Day 0”, and the surrounding two days as “Day -1” and “Day 1”.

4.2 The market model

To calculate the normal return, two common preferences exists; “the constant mean return model, where 𝑋𝑡 is a constant, and the market model where 𝑋𝑡 is the market return” (MacKinlay, 1997).

The constant mean return model presumes that the mean return of a security is constant over time. The creator of the market model, Sharpe (1963) explains that the model presumes a linear relationship between the securityand the market return. This is more appropriate since the overall return on the market is related to each stock return. It effectively eliminates the part of the return, which is related to variation in the market’s return. Thus, the variance of the abnormal return is reduced. Consequently, the market model potentially represents a superior capacity to distinguish event effects. Therefore, the market model carries a potential advantage over the constant mean return model (MacKinlay, 1997). Further, the market model has been used as a tool to investigate the effect on shareholder wealth and market efficiency through the use of abnormal returns in several previous studies (Corhay & Rad, 1996).

The market model is a one-factor model, meaning it only depends on one variable, the market return, to describe the normal return. With a sample consisting of a large number of independent variables, such as the sample used in this study, the distribution of the sum tends to be normally distributed, providing a theoretical justification for the assumption of normality (Gujrati & Porter 2009). Through the usage of the market model, the normal distribution of market returns is often academically assumed (Dillén and Stoltz, 1996). In line with this, the same assumption is also applied to this study. Other, more complex, methods exist; which can account for additional factors that may affect the normal return. These models can only marginally improve the effect of further reducing the variance of the abnormal return. One should consider using a multifactor model when the advantage is strongest, namely when comparing a sample with similar characteristics, such as researching only one industry (MacKinlay, 1997). Since the whole market is included in this study

The effect of corporate donations on a company’s market value in a short-term perspective: An event study approach