The Dark Side of Individual Blockholder Philanthropy

We examine the market reaction to charitable pledges by individual blockholders of public firms. As this philanthropy may signal a weakening preference for wealth maximization and maybe indicative of distraction or relaxed monitoring, these agency costs may overwhelm any reputation benefits. We find decreased firm value and lower pay-for-performance sensitivity, the effects of which are most severe where monitoring needs are high, the blockholder is a director, or when the firm has ex-ante high CSR ratings. Our results are robust to controlling for prior charitable foundation involvement, busy director-blockholders, dual class share structures, blockholder exit, and pre-pledge firm sentiment