Giving Through the Crisis: How Corporate Donations from Disaster-Afflicted Firms Impact Market Value

How do markets react when struggling firms donate to relief efforts? Do investors see these acts as noble and value-enhancing, or as risky?

A High-Stakes Dilemma in the Midst of Disaster

When disaster strikes, public expectations often fall on corporations to lend a helping hand—especially those directly affected. But how do markets react when struggling firms choose to donate to relief efforts? Do investors see these acts as noble and value-enhancing, or as risky diversions from essential self-preservation?

Ping Xiao and her co-authors explore this dilemma using a unique dataset of Chinese publicly listed firms that made donations during the first outbreak of COVID-19. The study contrasts two competing theories: the self-protection perspective, which suggests that diverting resources during a crisis erodes firm value, and the reputation-building perspective, which argues that altruistic actions boost trust and market confidence.

Donations That Signal Strength—or Vulnerability

To test these competing views, the researchers tracked 1,190 donation announcements made between January and April 2020. Using a sophisticated event study methodology, they measured the immediate stock market reaction—known as cumulative abnormal returns (CAR)—to each firm’s donation.

The results? On average, donations increased firm value, especially when the donations were made by smaller or less profitable firms, when goods were given alongside cash, and when donations occurred before many peers had contributed. These findings support the reputation-building theory: investors may reward firms seen as generous, resilient, and socially responsive.

However, not all donations were equally well received. Larger cash donations and those made immediately after the disaster’s onset were associated with lower firm value. These patterns reflect investor concerns around liquidity and risk—lending credence to the self-protection view. The timing and nature of donations clearly matter.

A Nuanced View: Balancing Generosity and Risk

What makes this study stand out is its careful attention to situational context. By combining financial data, corporate announcements, and market reactions, Xiao’s team dissects the mechanics behind each donation’s impact. Here are key takeaways:

• Smaller firms benefit more: Investors react more positively when resource-constrained companies step up, likely because these actions are seen as genuine and costly.
• Goods donations add value: Tangible contributions like medical supplies signal authenticity and effort, enhancing reputation more than cash alone.
• Early generosity can backfire: While timeliness is often praised, jumping in too early—when uncertainty is highest—may raise red flags about managerial judgment.
• Being first pays off: Donating before others in the same industry enhances visibility and signals leadership, resulting in a stronger market response.

This intricate balancing act highlights the dual nature of corporate philanthropy during crises. It can build goodwill and investor confidence—but only if executed with strategic foresight.

Analytics Meets ESG Strategy

Beyond its insights for crisis management, this paper exemplifies how data analytics can support Environmental, Social, and Governance (ESG) decision-making. The use of event studies, two-stage regression models, and control function approaches offers a rigorous framework to evaluate ESG actions not just by intent—but by outcome.

For ESG-minded executives and boards, the message is clear: social responsibility doesn’t need to come at the expense of shareholder value. In fact, under the right conditions, it can enhance it.

Strategic Philanthropy for Resilient Reputation

Ping Xiao’s research adds a new layer to our understanding of corporate behavior in times of crisis. By showing that market value can rise or fall based on how—and when—firms donate, it challenges the notion that philanthropy is purely a moral or public relations choice.

For business leaders, the implication is profound: disaster relief is not just about doing good—it’s also about signaling stability, resilience, and leadership in uncertain times. The most effective donations are those that demonstrate genuine commitment without jeopardizing firm continuity.