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Mark Hulbert Archives | Email alerts
Dec. 13, 2011, 12:01 a.m. EST
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) "” Do companies that do good do well too?
There's some tantalizing evidence that they do. And while that's good news any time of the year, it is especially welcome in the midst of the holiday season.
The evidence comes in the form of an academic study that focused on whether companies that give more to charities experience greater revenue growth in subsequent years.
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Entitled "Is Doing Good Good for You? How Corporate Charitable Contributions Enhance Revenue Growth," its authors are three accounting professors: Baruch Lev of New York University, Christine Petrovits of George Washington, and Suresh Radhakrishnan of the University of Texas at Dallas. ( Click here to read the study. )
This is not the first study to analyze the relationship between corporate philanthropy and performance. But prior studies tended to focus on other measures of performance besides revenue growth, such as stock price"”and no consensus emerged about what impact that philanthropy had, if any.
The ensuing debate periodically flares up, as it did this past August in the wake of Steve Jobs' death. It was widely noted at the time that Apple had not donated large sums to any charities, at least publicly, and that Jobs had declined to join the Giving Pledge, the organization founded by Warren Buffett and Microsoft's Bill Gates in hopes of persuading the United States' richest individuals to donate half their fortunes to charity. And yet it would be hard to argue that Apple's stock suffered.
The professors worried, however, that because there are so many possible and varied influences on stock prices, the impact of corporate contributions might be diluted in these studies"”or hidden altogether.
They believed revenue growth to be a more sensitive barometer. And, sure enough, they found that increased charitable contributions from a company were strongly associated with greater growth in revenue in subsequent years.
Of course, correlation is not causation, and the professors went to some lengths to tease apart what may be causing what. And though they concede that their conclusions must remain at least somewhat tentative, they believe that increased giving was at least partially the source of the growth in revenue.
For example, they found that, while companies that increased their giving on average experienced a growth in revenue in subsequent years, the reverse was not true. In other words, companies whose revenues were growing the fastest did not necessarily proceed to increase their philanthropy.
Why and how would the one lead to the other? The professors believe that at least part of the explanation lies in the increased good will that the companies earn when donating to charity. For example, they found that the correlation between increased contributions and faster-growing revenues was particularly strong among companies that are "highly sensitive to consumer perception, where individual consumers are the predominant customers."
Which companies give the most to charity? The current year is not yet over, of course, but past years lists have prominently included several large drug companies: Pfizer /quotes/zigman/238207/quotes/nls/pfe PFE +2.75% , Merck /quotes/zigman/574389/quotes/nls/mrk MRK +0.33% , Johnson & Johnson /quotes/zigman/230812/quotes/nls/jnj JNJ +0.17% , and Bristol Myers Squibb /quotes/zigman/220498/quotes/nls/bmy BMY +1.51% , to name four.
Other companies that often have appeared on lists of top corporate givers include Wal-Mart /quotes/zigman/245476/quotes/nls/wmt WMT -0.31% , Microsoft /quotes/zigman/20493/quotes/nls/msft MSFT +1.80% , and Altria /quotes/zigman/294903/quotes/nls/mo MO +1.14% .
Click here to learn more about the Hulbert Financial Digest.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
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Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD... Expand
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now. Collapse
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