Fiscal Transparency and Corporate Donations

This study investigates the influence of government transparency on corporate donations. We argue that firms that are less informed about the local government’s fiscal management may be more motivated to make donations. Using a sample of Chinese listed firms from 2013 to 2022, we find that corporate giving is negatively associated with local government fiscal transparency. The effect is weaker for state-owned enterprises and stronger for firms with stronger altruistic motivations to donate. Additionally, the effect cannot be attributed to political motives, China’s Targeted Poverty Alleviation program, or the fiscal status of local governments. Further, we find that an increase in fiscal transparency leads to a relative increase (decrease) in tax payments (donations), and tax enforcement does not mitigate the negative relationship between fiscal transparency and corporate donations. Finally, we document that investors tend to value donations more when fiscal transparency is lower. This paper provides new insights into the motivations behind philanthropy from the perspective of information asymmetry between governments and firms.