BALANCING

SHAREHOLDER’S
NEEDS AGAINST
CORPORATE
PHILANTHROPY
By,
Group No: 07

“Most companies feel compelled to give to charity. Few have figured out how to do it well”

DEPARTMENT OF FINANCE
UNIVERSITY OF SRI JAYEWARDENEPURA
 University of Sri Jayewardenepura
Faculty of management Studies & Commerce
Department of Finance
BSc. Finance (Special) Degree Program – 2008/09
Group Report:
FIN 3301 – Advanced Corporate Finance. 2008/09

Balancing Shareholder’s needs against corporate philanthropy

Group Members
Name Reg No. Index No
01. H.A.D. Krishantha 57581 5455
02. H.D.R. Fernando 57443
03. M.D.S. Sanjeewa 55748 4594
04. K.H. Habarakada 55421 4269
05. G.G.D. Maduranga 57660 5534
06. R.S. Sooriyaarachchi 55791 4637
07. W.M.C.K. Wanasinghe 55834
08. S.P.M.M. Priyadarshana 55672
09. R.P.L.B. Rajapaksha 55687 4534
10. B.A. Rankothge 57837 5711
To : Dr. Weerakoon Banda
From : Group No.
Subject : Balancing Shareholder’s needs against corporate philanthropy
Date : 02-10-2009

Executive Summary
01. Introduction
According to this article we carried out in depth review about shareholders needs against corporate
philanthropy. In this review we hope to discuss about advantages & disadvantages of the corporate
philanthropy.

02. Problem Area

Firm’s managers engage in divergent activities without approval of the shareholders. In that type of situation
it will causes to arise agency problems with shareholders. And other hand dividends will be reduced as a
result of highest valuable donations. Therefore the market value of the shares will effect to decline. So it will
impact to the short term investors. But donations will create long term benefits. Another case is some firms
make donations for free from taxes. It causes to reduce government social activities.

03. Methodology
We can introduce a methodology to evaluate market value per share as follows.
۲‫ܗ‬
ࡼ࢕ ൌ
‫ܚ‬
Where, Do – Dividend per share at year 0
Po – Market price per share
r – Cost of Capital
If the company decides to allocate expenses as donations, it causes to reduce the total dividends attributable
of the shareholders. So dividends per share will decline. Reduction of “Do” will affected to reduce the market
price per share at the existing interest rate.

04. Analysis
Taken as a whole, this article said how corporate social responsibility cause to short term investors and long
term investors. According to that short term investors are not willing to corporate philanthropy. But long
term investors are really interest for it. As an economical point of view corporate philanthropy make great
support to the increase value of these both type of investors. Because corporate philanthropy causes to
increase shares value gradually, in here short term investors also can earn gains on it without any risk.

05. Conclusion
Finally we can conclude there must be a balance between shareholders interest and the firm’s corporate
philanthropy.

06. Key Words

Corporate Philanthropy : The practice of performing charitable or benevolent actions by firms.
Shareholders Wealth : Total value of the shareholders
Moral Obligations : Make donations for the benefits of another party
Deferred benefits : Future benefits
Expropriation : Deprive (an owner) of property, by taking it for public use.
Report
01. Introduction
The word philanthropy is meaning "love for mankind". Corporate philanthropy refers to the giving by a for-
profit company directly to charitable organizations from the corporation or to individuals in need with the
intention of improving the quality of life. The expense incurred through voluntary grant-making is typically
planned as part of the company's annual budgeting process. Corporate philanthropy is a key component of a
corporation's broader social responsibility and includes cash gifts, product donations, and employee
volunteerism. It serves as a major link between the corporation and the communities it serves.

02. Advantages
Corporate philanthropy can benefit companies in a number of ways.
2.1 Benefits to the business
• Enhances corporate reputations
• Improves relations with government, the community, and key stakeholder groups
• Supports a company's strategic business goals
2.1 Benefits to the stakeholders (Employees, Management team, Shareholders…..etc.)
• Build employee morale and engagements
• Enlarges sense of community and social obligations
• Develops future workforce contributing to a sustainable company
2.3 benefits to the community (local & global)
• Improves quality of life for community members
• Provides human and capital resources to nonprofit organizations that may be helping employees
and their families.
• Enhances the impact of monetary contributions directed into the community

03. Arguments
The main argument against corporate philanthropy is based on claims about the rights of property owners,
which is entitle to the full value of their investment.
Benefits of this kind of investments like donations will be long term. So shareholders have to wait for the
accrued benefits to be realized.
Some stakeholders argued that the government intervention is essential for distribution of common goods
among imposing taxes like social development taxes.

04. Conclusion
As a social entity each and every corporation included environmental factors for their operations. So that it
makes some effects on environment. Therefore all the firms should reclaim those effects because that might
be caused to the long term survival of the entity.
Today, corporations want to measure value and accomplishment, not based on corporate resources provided
to improve society, but by actual outcomes achieved. Corporations view grants as strategic investments
intended to achieve measurable charitable returns.

05. Recommendations

It is recommended that firms should examine the nature of morale obligations to the society as a
priority base from strong to the weak.

It is recommended that there should be full disclosure of amounts donated to charity to the
shareholders.

Thank You
*******