Philanthropic Activities and Companies Innovation under Conditions of Information Asymmetry

Philanthropy is one of the most important bases of social ethics that considers and studies the affection for human beings. Corporate philanthropy results in taking into account the companies’ growth with regard to the production of goods and new products. Therefore, in this study the effect of philanthropic activities on companies’ innovation is investigated by considering the information asymmetry. This research is applied with ex post facto approach and its design is quasi-experimental. 60 companies listed on the Tehran Stock Exchange were examined during 2011-2017. Company’s donations to charitable and beneficial organizations are used to measure philanthropic activities and research costs and development are utilized to measure innovation as well. A panel data model was administered to test the research hypotheses. The results show that philanthropic activities have a positive and significant effect on company innovation. In addition, the impact of philanthropic activities on innovation in companies with higher asymmetric information is more than ones with lower information asymmetry. Philanthropic activities are a proper model for decreasing conflict of interests between managers and stockholders and creating a modern insight in relation with the production of new goods and products. In particular, the direct donation of companies to universities, research institutions, and charities will develop new goods and products and consequently, it would reduce any kind of conflict of interests between managers and shareholders