On Executive Stock Donations and Analyst Recommendations

Abstract

The present paper focuses on a very specific philanthropic aspect of corporate social responsibility (CSR), namely stock donations by executives. Specifically, we seek to investigate 1) the stock reaction to stock donations by executives and 2) the impact if any, these executive stock donations have on analyst recommendations. We find support for agency theory in that there is a negative stock market reaction to the executive stock donation. However, we find strong support that larger executive stock donations precede higher analyst recommendations, analyst upgrades, and fewer sell recommendations, which indicates support for the stakeholder theory argument. Shareholders may view stock donations as wasteful, while analysts may view them as an expression of the firm’s larger strategy. This supports the finding by Zhang et al. (2015) that CSR allows firms to build reputation, which may be captured in the analyst recommendation.