Financial Performance Above Aspiration and Philanthropic Donation Intensity: The Roles of Legitimacy and Competitive Pressures

Abstract

Existing literature posits that corporate financial performance has a positive relationship with philanthropic donation intensity. However, the relationship between financial performance and philanthropic donation intensity may be more complex than what has been depicted. In addition to the legitimacy pressure for philanthropic acts, we suggest that well-performing firms also face strong competitive pressure to sustain high financial performance, which reduces the motivation to increase philanthropic donation intensity. Considering the joint influence of legitimacy and competitive pressures, we propose a log-linear relationship between financial performance above aspiration and philanthropic donation intensity, that is, philanthropic donation intensity increases at a decreasing rate with firm performance above aspiration. We further introduce state ownership (which amplifies legitimacy pressure) and market competition (which intensifies competitive pressure) as two moderators of the main relationship.