Charity Enhances Revenue, Study Shows

When a corporation contributes to charity – such as donating money for medical research, education, housing the needy, feeding the poor – does it help the company’s financial picture? New research conducted by professors at The University of Texas at Dallas School of Management and New York University says it does.

A joint study conducted by UT Dallas and NYU scholars suggests that the $14 billion donated in cash and products by corporations in 2005 is resulting in significant income for those businesses. In fact, the study has found that for every one dollar a company allocates to its charitable giving budget, future sales grow on average by six dollars. The findings make a definitive business case for formal giving programs, particularly in public service industries like retail, banking and consumer goods, says Dr. Suresh Radhakrishnan, professor of accounting and information management at UT Dallas.

Radhakrishnan conducted the research with two researchers from NYU’s Stern School of Business: Baruch Lev, a professor of accounting and finance, and Christine Petrovits, an assistant professor of accounting. The study, Is Doing Good Good for You? Yes, Charitable Contributions Enhance Revenue Growth, won second place in the prestigious Moskowitz competition in October 2006. Sponsored by the Center for Responsible Business at the Haas School of Business at the University of California at Berkeley, the competition drew entries from some 60 international university scholars.

The study, which examined 251 corporate donors and their giving contributions from 1989 to 2000, accounts for several mitigating factors, such as the state of the economy and the effectiveness of managers within each corporation.

“This is one of the first studies that has shown that charitable giving leads to improved sales, especially for companies that are in the business of dealing with consumers,” said Radhakrishnan.

“Researchers in the field of corporate social responsibility have tried to correlate charitable giving with
stock values and profits, and the results have been mixed. The major concern has been that investors give money to companies and the companies turn around and basically give it away to their preferred charities. The question has been ‘is this a wasteful expenditure?’ Our analysis shows that it is not.”

How a company turns its philanthropy into financial gain is not directly addressed; however, one can reason that companies that publicize their good deeds enhance brand awareness and improve the corporation’s reputation, said Radhakrishnan.

“Corporate giving can enhance a company’s long-term reputation, which increases customer retention and reduces the price elasticity of demand,” Radhakrishnan said. “Philanthropy programs can also be established to increase demand in the short run – such as Avon’s pink ribbon products where a portion of each sale goes to Avon’s Breast Cancer Crusade – and in the long run, such as McGraw Hill’s literacy program that ultimately increased its consumer base.”

The paper cites a 2000 survey conducted by Walker Information and the Council on Foundations that demonstrates the impact of consumer perception on sales. According to the survey, customers who rate a firm’s philanthropy as high, nearly 95 percent say they will continue doing business with the company. Among customers who rate a firm’s philanthropy as low, only 67 percent say they will continue doing business with the company.

“We started work on this study about a year ago, and this is the first layer that we have peeled back,” Radhakrishnan said. “Is it the foundation giving or the companies’ direct giving that has more impact? Is giving in other countries as useful as giving locally? There are lots of interesting questions and lots of further aspects that we could look at. But this is a start.”

About the School of Management

Faculty in the School of Management at The University of Texas at Dallas rank 33rd in research productivity nationwide, based on publications in the top 24 business journals spanning all areas of business. Financial Times, using a broader set of 40 journals, ranks UTD’s management faculty 30th worldwide. Financial Times also ranks the university’s Executive MBA program 48th in the world and 22nd in the U.S, and U.S. News and World Report lists UTD’s full-time Cohort MBA program 54th nationwide and 25th at public colleges and universities in the United States.  The School of Management is the largest of UT Dallas’ seven schools, with an enrollment of nearly 4,700, of which 2,500 are graduate students.

About UT Dallas

The University of Texas at Dallas, located at the convergence of Richardson, Plano and Dallas in the heart of the complex of major multinational technology corporations known as the Telecom Corridor®, enrolls more than 14,500 students. The school’s freshman class traditionally stands at the forefront of Texas state universities in terms of average SAT scores. The university offers a broad assortment of bachelor’s, master’s and doctoral degree programs. For additional information about UT Dallas, please visit the university’s website at www.utdallas.edu.

Contact Jill Glass, UT Dallas, (972) 883-6298, pschoch@utdallas.edu

Dr. Suresh Radhakrishnan