Good deeds earn chits? Evidence from philanthropic family controlled firms

This study examines whether charitable family controlled firms have lower default risk. Using Taiwan data that provide clear information about firms’ benevolent intention and avoid endogeneity issue of risk and charitable activities, we show that charitable family controlled firms have lower default risk, which is proxied by value-at-risk and expected shortfall measures. Our finding shows that charitable activities bring benefits of lower risk to shareholders. This study also provides various channels that can lower default risk for the charitable firms. That is, these firms appear to have higher credit ratings, engage less in earnings management, and have higher worker productivity. This study argues that the benevolent mindset of decision makers at firms help lower default risk.