CASE STUDY

The Impact of Operational Diversity on Corporate Philanthropy: An Empirical Study of U.S. Companies

Jean D. Kabongo • Kiyoung Chang •

Ying Li

Received: 14 November 2011 / Accepted: 6 August 2012 / Published online: 23 August 2012

� Springer Science+Business Media B.V. 2012

Abstract This paper investigates the impact of diversity

on corporate philanthropy. Compared to previous studies

that have considered the influence of board diversity and

CEO gender on corporate philanthropy, this study intro-

duces the concept of operational diversity, which is the

implementation of diversity programs at management,

employee, and supply chain levels, and further, it explains

why operational diversity influences corporate philan-

thropy, by using the premises of resource dependence

theory. Second, this study also investigates the influence of

board diversity on corporate philanthropy. Third, this study

uses a large sample of U.S. firms over the period of

1991–2009 and tries to mitigate possible omitted variables

and endogeneity problems that are often overlooked in

previous research. We demonstrate that firms with opera-

tional diversity programs are likely more dependent on a

broad variety of resources and give more to community as

a strategic maneuver; hence, operational diversity is a

better indicator for predicting future corporate giving than

board diversity alone. However, having a woman or a

member of a minority as a company’s chief executive

officer is not sufficient to impact its charitable giving. A

battery of robustness tests support our conclusion and

confirm that our results are not driven by a firm’s general

corporate social responsibility (CSR) score, gender or

independence of board members, or firm ownership. This

paper will assist researchers, practitioners, and other

stakeholders in deepening their understanding of the pre-

dictors of corporate giving.

Keywords Corporate philanthropy � Operational diversity � Board of directors � Resource dependence theory

Introduction

Corporate philanthropy continues to be a field of interest in

various academic, professional, business, and community

circles as the emphasis has shifted to aligning business

goals and resources with philanthropy (Porter and Kramer

2002; Smith 1994). Corporate philanthropy or corporate

giving has been conceptualized in many different ways.

Burlingame (2001) defined it broadly as an act of corpo-

rations giving a portion of their profits and resources to

non-profit organizations. In recent decades, the dynamic of

the relationship between corporations and the communities

they serve has been changing (Ackerman 1973; Waddock

and Boyle 1995), and demographic shift is one of the

factors affecting this change. As more women, minorities,

and people of different backgrounds and lifestyles—source

of valuable resources—enter the marketplace, companies

need to take advantage of this changing environment in

order to remain competitive. This environment change

increases the importance of diversity initiatives at the firm

level. Given the growing interest in both corporate

J. D. Kabongo (&) College of Business, University of South Florida

Sarasota-Manatee, 8350 N. Tamiami Trail, SMC-C263,

Sarasota, FL 34243-2025, USA

e-mail: [email protected]

K. Chang

College of Business, University of South Florida

Sarasota-Manatee, 8350 N. Tamiami Trail, SMC C229,

Sarasota, FL 34243, USA

e-mail: [email protected]

Y. Li

University of Washington Bothell, 18115 Campus Way NE,

Office UW2-322, Bothell, WA 98011-8246, USA

e-mail: [email protected]

123

J Bus Ethics (2013) 116:49–65

DOI 10.1007/s10551-012-1445-9

philanthropy and diversity programs within the firm, the

relationship between firm diversity and corporate philan-

thropy presents a topic that is worth investigating. Does

firm diversity influence more charitable contributions?

Previous research has identified several firm character-

istics that influence how much a corporation gives to

charity, including slack resources (Waddock and Graves

1997), cash flow (Seifert et al. 2003, 2004), advertising

expenses (Brammer and Millington 2004; Fry et al. 1982;

Navarro 1988; Zhang et al. 2010), firm size (Amato and

Amato 2007; Boatsman and Gupta 1996; Brammer and

Millington 2006), and board composition/diversity (Coffey

and Wang 1998; Wang and Coffey 1992; Williams 2003).

Studies on the relationship between firm characteristics

and corporate charitable contributions, however, have been

inconclusive (Vaidyanathan 2008). Coffey and Wang

(1998, p. 1601) concluded that there is a need to reex-

amine the key assumptions about the philanthropic

behavior of firms. In this paper, we use the elements of

resource dependence theory (Pfeffer and Salancik 1978) to

analyze the relationship between corporate philanthropy

and firm diversity. Firms acquire essential resources they

need to operate in competitive markets through the

implementation of diversity programs and the develop-

ment of relationships with other organizations in their

environments. Specifically, we posit that the management

and dynamism of interdependent relationships between a

firm and its environment are more likely to lead to orga-

nizational behavior of corporate giving. In fact, previous

research has found that firms use corporate philanthropy to

reduce the risk associated with the acquisition of resources

(Berman et al. 2005; Haley 1991). Our contention in this

paper is that the acquisition of essential resources is

related to the implementation of diversity programs at the

board, management, employee, and supply chain levels of

the firm. Following the Kinder, Lydenberg, Domini (KLD)

database, we conceptualize a diverse board as one with

women, minorities, and/or the disabled holding four or

more seats on the board or one-third or more of the board

seats if the board numbers are fewer than 12. We introduce

the term ‘‘operational diversity’’ to designate diversity

practices implemented beyond the leadership level, which

include the promotion of women and members of minority

groups to key positions; the implementation of work/life

programs for employees; the commitment to work with

women and/or minority-owned businesses as suppliers; the

implementation of hiring programs for disabled; the pro-

vision of progressive policies towards its gay and lesbian

employees; and other diversity programs under corporate

leadership. We argue by applying the resource dependence

theory that operational diversity program is strong evi-

dence that firms with such programs are likely more

dependent on a broad variety of resources, hence such

firms are more likely to give back to community as a

strategic maneuver.

To the best of our knowledge, no other existing research

has analyzed the influence of operational diversity on

corporate philanthropy. This paper fills this gap in the lit-

erature by investigating corporate philanthropy further,

along with its relationship with operational diversity. This

study makes the following contributions: First, we dem-

onstrate that the presence of women, minorities, and/or

disabled on the board of directors influences more corpo-

rate giving. Second, we show that operational diversity has

a stronger impact on future corporate giving than board

diversity alone. Third, we demonstrate that a company’s

chief executive officer (CEO) being a woman or a member

of a minority group may not be sufficient to impact its

charitable giving. Fourth, methodologically, we go beyond

simple correlation and ordinary least square analyses to

mitigate omitted variables and endogeneity problems often

overlooked in previous research (see Garcia-Castro et al.

2010). 1

The rest of the paper is organized as follows: First, we

develop the theoretical foundation of the study and then we

formulate hypotheses. Next, we describe the methodology

used to conduct the research. Finally, we present an anal-

ysis of the results followed by a discussion and conclusion.

Theoretical Background

The growing interest in both corporate philanthropy and

diversity programs within the firm can be justified by the

current dynamism of the marketplace and the urgency by

firm managers to take advantage of the changing environ-

ment. Board diversity represents the diversity program at

the leadership level and previous studies on board diversity

emphasize the corporate decision making process for the

maximization of shareholder’s value and its impact on

corporate philanthropy. Operational diversity, on the other

hand, reflects corporate strategic commitment to diversity

below leadership level. As the first study that differentiates

board diversity and operational diversity, we argue that

even though both belong to the broad concept of firm

diversity, the mechanisms of how they impact corporate

philanthropy can be quite different. Resource dependent

theory (Pfeffer and Salancik 1978) provides insight into

how acquiring certain resources and developing stronger

relationships with the community must be considered as

key factors for a firm to remain competitive.

1 Given the different levels of giving by industries and time, we

include industry and year fixed effects in all of our regression

analyses.

50 J. D. Kabongo et al.

123

Following prior research on workforce diversity, we

define diversity broadly in terms of a business model of a

firm that values differences of cultural backgrounds, skills,

and demographics of its stakeholders (Cox 1993; DiTom-

aso and Post 2007; Harrison and Klein 2007) at leadership,

management, employees, and supply chain levels. This

conceptualization of diversity as a business model under-

lines at least two key factors at the center of our study:

organizational and economic perspectives and business

strategy. First, diversity is analyzed in terms of its orga-

nizational and economic implications as opposed to ethical

considerations. Firms embrace diversity as a reaction to

environmental changes and imperatives that might bring

about new economic opportunities. Second, as a business

imperative, diversity becomes an integrated part of the firm

strategies. As such, diversity is a firm rationalization of

how to create value by acquiring different organizational

resources and how various diversity programs that the

company implements fit together.

Resource Dependence Theory

In proposing the resource dependence theory, Pfeffer and

Salancik (1978, 2003) attempt to explain the behavior of

organizations—in terms of actions and decisions—by

looking at their interactions with a number of factors in

their environments. The fundamental idea of resource

dependence theory is that organizations depend on their

environments to survive. The actions and decisions of

organizations are influenced by the dependence on impor-

tant resources acquired from their environments. These

actions and decisions can also be explained by the partic-

ular situation created by the dependence.

Pfeffer and Salancik (2003) argue that organizations that

lack ‘‘critical’’ resources to survive will seek to acquire and

exchange them by establishing relationships with other

entities from their environments by creating dependence

between a firm and external units. The analysis of the

environment and context in which an organization operates

is central to understanding an organization’s behavior. In

this perspective, the establishment of relationships with the

environment will create ‘‘dependence’’ between the orga-

nization and the entities upon which it relies to gain

resources. This dependence implies that the ‘‘critical’’

resources an organization needs are often owned by other

groups or organizations. These ‘‘interest’’ groups can be

found inside and outside the firm. Plant workers, first-line

managers, middle and top managers, women, minorities,

disabled, and minority suppliers are examples of interest

groups that firms rely on to acquire and exchange

resources.

Organizations use adaptation and alteration of the

environment as strategies to manage and avoid resource

dependence (Pfeffer and Salancik 2003). Several studies

have demonstrated that firms use corporate philanthropy to

reduce the risk associated with the acquisition of resources

(Berman et al. 2005; Haley 1991). This line of argument

suggests that strategic corporate philanthropy (Porter and

Kramer 2002) is a conspicuous example of altering the

environment to fit the firm capabilities.

Resource dependence theory is particularly relevant in

explaining the relationship between diversity and corporate

philanthropy. First, because of resource constraints, firms

depend on other groups and actors in their environments

for acquiring resources through the recruitment of diverse

board members, top managers, employees, and suppliers.

Second, firms have interconnected power relationships

with other organizations with which they share the dis-

cretion or power of control over the resources. Conse-

quently, the implementation of diversity programs at

operational levels may increase the levels of discretion of

power among interest groups. Third, firms use corporate

philanthropy to manage, minimize, and avoid dependence

on their environment. Finally, we expect diversity to

influence the organizational decisions and charitable

giving.

Board Diversity and Corporate Philanthropy

Most of the research on boards of directors has analyzed

their roles in the perspectives of agency relationship and

resource dependence (Hillman et al. 2000). The agency

role is embedded in the broader perspective of governance

mechanisms (Bartkus et al. 2002; Hillman and Dalziel

2003; Kesner 1988; Pearce and Zahra 1992). These

mechanisms are put in place to monitor managerial

behavior to maximize shareholder’s value by reducing the

scope and frequency of the agency problem (Jensen and

Meckling 1976; Ross 1973). The directors play the role of

both monitor and provider of essential resources to the

corporations through links to the external environment

(Boyd 1990; Daily and Dalton 2003; Hillman et al. 2000;

Hillman and Dalziel 2003). However, most of the studies

on board composition has focused on several characteris-

tics of directors, including insiders and outsiders, gender

(Boyd 1990; Pearce and Zahra 1992; Coffey and Wang

1998; Wang and Coffey 1992; Williams 2003), business

experts, support specialists, community influentials (Hillman

et al. 2000). Our study focuses on board diversity in the

perspective of race, gender, and disabilities and its rela-

tionship to corporate philanthropy based on resource

dependence theory.

The relationship between board diversity and corporate

philanthropy is analyzed by using three arguments of resource

dependence theory: diverse board as essential resource pro-

vider; women, minorities, and disabled directors’ discretion

The Impact of Operational Diversity on Corporate Philanthropy 51

123

over resource allocation; and, strategic nature of philanthropic

activities and decision making of a diverse board of directors.

First, consistent with resource dependence theory,

organizations need to acquire critical resources to survive

by establishing relationships with other entities from their

environments (Pfeffer and Salancik 2003). Barney and

Arikan (2001, p. 138) define firm resources as ‘‘tangible

and intangible assets firms use to conceive of and imple-

ment their strategies.’’ This definition includes all assets,

capabilities, organizational processes, firm attributes,

information, and knowledge controlled by a firm, in order

to improve efficiency and effectiveness (Barney 1991; Daft

1983). Firms seek linkages with the most beneficial

resources and recruit board members on this basis. Pfeffer

and Salancik (2003) argue that board linkages provide

advice/counsel, legitimacy, and communication channels.

Scholars have highlighted the importance of directors’

human capital and social capital. Becker (1964) argues that

an individual’s cumulative stocks of education, skills, and

experience in enhancing and producing capabilities benefit

the individual and his/her organization. This argument may

be applied to individuals from different backgrounds.

Second, Pfeffer and Salancik (2003) argue that the

extent of discretion over the resource allocation and use

by an interest group is a source of power relationships

between the firm and other groups and organizations in

its environments. This argument may suggest that as

women, minorities, and disabled directors bring human

capital to the board (Kesner 1988), they have discretion

over the allocation and use of this human capital. In the

same line of thought, with the discretion of the use and

control of the resources they possess, women, minorities,

and disabled tend to seek the welfare of other groups

inside and outside of their organizations. In fact, Wang

and Coffey (1992) reported that women and minorities

board members tend to be more sensitive to corporate

social performance, which tends to impact positively on

corporate philanthropy. Wang and Coffey (1992) argued

that women and minority directors are more likely to

represent special interest groups because of their social

and economic background. Stultz (1979) found that

women’s careers were more diverse and less business-

oriented. Consistent with resource dependence theory,

this unique background and lessened business-orientation

coupled with the ability to control the use of resource

tends to be a major source of influence for women and

minorities on boards of directors (Pfeffer and Salancik

2003, p. 49). The actions and decisions of organizations

are the results of distribution of power and control within

organizations. The sensitivity of women, minorities, and

disabled to social issues can be considered as part of such

distribution and control of power that emanate from the

possession and use of critical resources on the boards of

directors.

Finally, resource dependence theory assumes that

organizations use strategies to manage and avoid depen-

dence on other entities or groups of actors. Pfeffer and

Salancik (2003) argue that corporations can alter the con-

ditions of their environments to fit their capabilities. This

argument is in line with strategic corporate philanthropy

resulting from the analysis of the conditions of the business

environments. The strategic use of philanthropy would,

according to Smith (1994, p. 105), give companies a

powerful competitive edge. In this perspective, Porter and

Kramer (2002) argue that ‘‘philanthropy can often be the

most effective way for a company to improve its compet-

itive context, enabling companies to leverage the efforts

and infrastructure of nonprofits and other institutions’’ (p.

61). This perspective of resource dependence theory sug-

gests that corporate philanthropy is a means by which a

firm can exercise control over the allocation and use of

resources. Consistent with resource dependence theory, this

behavior results from the presence of diverse board mem-

bers who bring unique resources and whose control and use

of the resources impacts corporate philanthropy in a posi-

tive way.

Combining the above three arguments, we hypothesize

that

H1 Firms with diverse boards of directors are more likely

to give to charity than firms without such board room

diversity.

CEO: Woman or a Member of a Minority Group

and Corporate Philanthropy

Resource dependence theory can also be applied to con-

sider a firm’s CEO who is a woman or a member of a

minority group and the impact on corporate giving. While

the studies are not extensive, scholars have looked at

women and minorities in leadership positions and their

influence on corporate philanthropy (see Marquis and Lee

2011). We build on these perspectives to analyze further

the relationship between CEOs who are women and

members of a minority group and the level of philanthropic

activities of their respective firms. Three arguments of

resource dependence theory are used: legitimacy; discre-

tionary nature of corporate philanthropy; and, altruistic

characteristic of women.

The recruitment of women and minority CEOs is con-

sistent with the assumption that to survive, firms need to

access resources and establish linkages with other organi-

zations in their environments. Pfeffer and Salancik (2003)

argue that these linkages provide advice/counsel,

52 J. D. Kabongo et al.

123

legitimacy, and communication channels. Women and

minority CEOs can be a source of organizational legiti-

macy and corporate reputation. The study by Terjesen et al.

(2009) provides such evidence and found that women

and minority CEOs have symbolic value both internally

and externally. The study explains that where women (and

minorities) hold executive positions, firms are likely to gain

legitimacy from female and minority employees and

from other stakeholders as ‘‘female friendly employers’’

(p. 331). Also, according to the same study, having women

(and minorities) in leadership positions makes it more

difficult to claim that there is discrimination in the firm

(Terjesen et al. 2009).

Corporate philanthropic activities are discretionary

responsibilities of top managers such as CEOs. Carroll (1979)

conceptualizes that corporate philanthropy is a discretionary

responsibility over and above economic, legal, and ethical

obligations. Carroll (1979) argues that it could be expected

that there would be little pressure on executives to exercise

such responsibilities and so managers may choose to give to

charities if they have abundant resources. This argument is

consistent with the discretion of the control and use of

resources, as explained by Pfeffer and Salancik (2003). This

suggests that women and minority in leadership positions

such as CEOs can use philanthropic activities as a means by

which they exercise power conferred by the control and use of

resources. Williams (2003) found a relationship between

women in leadership positions (on boards) and charitable

support of community and cultural activities. Williams (2003)

offered an explanation that woman directors might experience

the influence of giving as a source of power.

A large body of empirical research from economics has

found that women tend to be more altruistic (Anderoni and

Vesterlund 2001; Cox and Deck 2006; Dufwenberg and

Muren 2006; Eckel and Grossman 1998; Kamas et al.

2008; Simmons and Emanuele 2007). Marquis and Lee

(2011) found that companies with more female leaders

contribute more to charity. Women and minority CEOs

would have an interest in protecting a diverse workforce by

engaging in corporate philanthropic behavior. This can be

explained by the fact that many of the same women and

minority members who have reached the level of CEO

have experienced several changes dealing with being a

woman or a member of a minority group on their way to

climbing up the corporate ladder. These leaders would

support corporate philanthropy in the companies that they

govern (Wang and Coffey 1992).

Based on the above, we suspect that

H2 Firms whose CEO is a woman or a member of a

minority group are more likely to give more to charity than

firms whose CEO is not a woman or a member of a

minority group.

Operational Diversity and Corporate Philanthropy

Operational Diversity Defined

The very term ‘‘operational diversity’’ conveys the main

content of this study. We conceptualize it in the perspective

of the linkages that a firm establishes with other organi-

zations its environments, which is at the core of resource

dependence theory. On the one hand, firms are facing

pressures from multiple stakeholders to have all their

programs and operations reflect their market, customers,

and/or employee base, which is more and more diverse. On

the other hand, firms feel the need to be like their cus-

tomers, including the need to understand and communicate

with them in terms that reflect their concerns and interests.

Operational diversity builds this bridge between the firm

and its environments. We conceptualize operational

diversity as a business model of a firm that values differ-

ences of cultural backgrounds, skills, and demographics of

its stakeholders at management, employees, and supply

chain levels for the sake of survival.

Operational diversity is ‘‘operational’’ because it focuses

on organizational and economical perspectives as opposed

to ethical considerations. With operational diversity, we

look at the effects of diversity on a wide range of work-

related outcomes within and outside the firm. Previous

studies in human resource and strategic management have

focused on diversity programs at management and

employee levels (see Barney and Wright 1998; Carrell and

Mann 1995; Cox 1993; Cox and Blake 1991; Osterman

1995; Robinson and Dechant 1997; Richard 2000; Thomas

1993). Our conceptualization of operational diversity con-

siders diversity programs and their outcomes at manage-

ment, employee, and supply chain levels. Operational

diversity implies both the breadth (nature of programs) and

depth (level of implementation) of diversity initiatives of

the firm. Breadth means that operational diversity programs

are broad in scope. In fact, operation diversity encompasses

a wide range of initiatives: promotion of women and

members of minority groups to key positions; implemen-

tation of work/life programs for employees; employment of

disabled; gay and lesbian policies; and, other diversity

programs under corporate leadership. This variety of pro-

grams includes some clusters of diversity according to

McGrath et al. (1995), specifically demographic charac-

teristics such as age, ethnicity, gender, sexual orientation,

physical status, religion and education; and, status in the

organization such as one’s hierarchical position, profes-

sional domain, departmental affiliation and seniority. Depth

means that operational diversity programs are intense in

scope. These programs are implemented at different levels

of the firm: management, employee, and supply chain.

The Impact of Operational Diversity on Corporate Philanthropy 53

123

Our conceptualization of operational diversity differs

from board diversity for two reasons. First, board diversity

as defined above is more concerned with the composition

and characteristics of directors in terms of race, gender, and

disabilities. Second, board diversity is often analyzed with

regard to the role of directors—agency and resource—in

the broader perspective of governance mechanisms put in

place to monitor managerial behavior to maximize share-

holder’s value. In this perspective, the notion of board

diversity refers to the ‘‘formality’’ of diversity as it pertains

to conventional rules of monitoring senior manager

behaviors to maximize shareholder’s value, while opera-

tional diversity bears the meaning of the ‘‘materiality’’ of

the notion of diversity. The implementation of programs at

management, employee, and supply chain levels material-

ize the need of a firm to be like their customers, and to

understand and to communicate with them in order to be

competitive.

Operational Diversity and Corporate Philanthropy

We use resource dependence theory to demonstrate the

extent to which operational diversity drives corporate

philanthropy. As stated earlier, research on the relationship

between operational diversity and corporate philanthropy is

scarce. Therefore, we build our conceptual framework

upon previous studies in related fields and make assump-

tions. Our contention is that these assumptions cannot be

achieved by board diversity alone. The assumptions are

drawn from the notion that operational diversity is an

essential resource that operational diversity recognizes the

demands of social reality, and that corporate philanthropy

enters the field as a reasonable response to environmental

constraints.

To respond to the changing environment and improve

productivity, corporate executives have to consider the

business implications of the diversity of its stakeholders.

These implications are at least threefold. First, operational

diversity addresses the needs of employees. Women,

minorities, and people of different background and life-

styles want their companies to recognize and internalize

their demands and concerns into daily operations. Second,

firms can utilize operational diversity to satisfy the

demands of the competitive landscapes. Differences of

cultural backgrounds, skills, and demographics of people in

corporations (Cox 1993; DiTomaso and Post 2007; Harri-

son and Klein 2007) contribute to a full range of human

potential. Richard (2000) demonstrated that cultural

diversity does in fact add value, and within the proper

context, contributes to the firm’s competitive advantage

(p. 164). Finally, firms utilize diversity programs to create

stronger relationships with the communities they serve.

The resource dependence theory supports the idea that

firms and their environments are ‘interconnected organi-

zations’ (Pfeffer and Salancik 2003, p. 70).

The ability to control the use of the resources would

become a major source of influence for interest groups at

management, employee, and supply chain levels. Pfeffer and

Salancik (2003) contend that ‘‘employees are frequently in a

position to control use most directly and occasionally obtain

satisfaction of their demands by using the power such use

confers’’ (p. 49). We follow Amason (1996) to suggest that

operational diversity within decision-making interest groups

will lead to changes in corporate strategy that would be

advantageous to philanthropic activities.

The implementation of operational diversity is more

likely to bring changes to the organizational culture and

employee mind-set, which are crucial to the effective

implementation of corporate strategies (Hill and Jones

2010). These changes in the organizational culture are

more likely to result in part from the establishment of

several interest groups within and outside the firm. Each

one of these interest groups has certain discretion to use

certain resources (skills, knowledge, information, organi-

zational processes, and business connections), which are

the basis of the interconnected relationships with the firm.

For instance, the promotion of women and minorities to

line positions with profit-and-loss responsibilities in the

corporation would increase the discretion of this particular

group of managers. The existence of several interest groups

may increase the level of discretion among these interest

groups. Consistent with resource dependence theory,

members of these interest groups may be better able and

more willing to influence organizational decision making

based on the social realities and demands of those with

whom they deal and upon whom they depend for support to

accomplish their activities. The more the firm implements

diversity programs at management, employee, and supply

chain levels, the more likely the levels of shared discretion

will increase. Organizations use strategies to manage and

avoid the dependence and their actions and decisions are

determined by environmental context (Pfeffer and Salancik

2003). Following this rationale, we infer that, to minimize

environmental constraints resulting from operational

diversity and control over resources exercised by interest

groups, a firm will more likely to engage in corporate

philanthropy. Several studies used resource dependence

theory to demonstrate that corporate philanthropy can help

a firm reduce the risk associated with resource acquisition

(Berman et al. 2005; Haley 1991) and reduce the risk

associated with the loss of resources already controlled

(Barnett and Salomon 2006; Brammer and Millington

2004; Godfrey 2005).

Based on the above, we expect operational diversity to

influence corporate philanthropy. Therefore, we propose

the following:

54 J. D. Kabongo et al.

123

H3 Firms that have operational diversity programs

beyond board level diversity give more to charity than

firms that do not have operational diversity programs.

Research Methods

Sample

The data consist of pooled time series and cross-sectional

observations of U.S. corporations rated by Kinder,

Lydenberg, Domini Research & Analytics, Inc. (KLD) for

their environmental, social, and governance performances

over the period from 1991 through 2009. KLD offers the

advantage of multiple rating criteria for social performance

(Vaidyanathan 2008) and has been used intensely by

researchers in corporate social responsibility (CSR) related

studies (see Albinger and Freeman 2000; Chen et al. 2008;

Bear et al. 2010; Post et al. 2011). For our study purpose,

we extract corporate giving information, as well as firm

diversity characteristics. Our sample spans the full range

during which KLD has collected data from 1991 to 2009.

We also recognize a major limitation of the KLD data:

Most variables are coded as dummy variables without more

specific information. For example, the giving variable is a

dummy as defined by KLD and does not provide the

information on amount of giving in dollars.

We then combine KLD with firm-level financial data,

which come from Compustat. Our final sample represents

4,438 unique firms and 24,944 firm-year observations.

These firms represent various industry sectors according to

the 1-digit Standard Industry Code (SIC). Table 1 provides

the distribution of the giving firms by the industries they

belong to and shows that corporate giving varies by

industry (Brammer and Millington 2004). The wide

industry variation shows that it is critical to control for the

industry effect in order to investigate the true effect of

diversity on corporate giving. Table 2 provides annual

distribution of giving and non-giving firms by years. We

see that there are big differences in sample size before and

after Year 2003, as KLD has added more firms in Year

2003. 2

As more smaller firms were added in Year 2003 and

after, the percentage of firms’ giving has reduced dramat-

ically. The yearly distribution confirms that bigger firms

are more likely to give. It also suggests that controlling for

firm size and year fixed effects is critical for this study.

Dependent and Independent Variables

A definition of all the variables used in the regressions is

provided in Appendix. Correlations and summary statistics

of the main variables are contained in Table 3. The main

dependent variable is a dummy variable, GIVING, which

equals 1 for a company that has consistently given more than

1.5 % of trailing 3-year net earnings before taxes and 0

otherwise. The mean value of GIVING is 0.03. The main

explanatory variables include eight dimensions of KLD

diversity strengths: (1) CEO equals 1 for a company’s CEO

being a woman or a member of a minority group and 0

otherwise. The mean value of CEO is 0.04. (2) PROMO-

TION equals 1 for the promotion of women and minorities to

positions with profit-and-loss responsibilities and 0 other-

wise. The mean value of PROMOTION is 0.22. (3) BOARD

equals 1 if women, minorities, and/or the disabled hold four

or more seats on the corporate board, or one-third or more of

the board seats if the board numbers fewer than 12, and 0

otherwise. The mean value of BOARD is 0.08. (4) WORK/

LIFE equals 1 for the implementation of outstanding work/

life benefits for employees and 0 otherwise. The mean value

of WORK/LIFE is 0.07. (5) CONTRACTING equals 1 for

Table 1 Distribution of observations according to

industry sectors

Industry by 1-digit SIC code # of sample

firms

% of firms with

GIVING = 1

Community strength

score average

Agriculture, Forestry, and Fishing (0) 63 6.35 0.111

Mining and Construction (1) 1,294 2.94 0.080

Manufacturing (2 & 3) 10,134 9.25 0.195

Transportation and Public Utilities (4) 2,450 3.43 0.171

Wholesale and Retail Trade (5) 2,425 4.04 0.142

Finance, Insurance, and Real Estate Services (6) 5,085 3.38 0.263

Services (7) 2,647 0.79 0.081

Health, Legal, and Administrative Services (8) 783 0.51 0.006

Public Administration and other (9) 63 3.17 0.524

Total/Average 24,944 3.50 0.174

2 According to KLD Stats (www.kld.com), the coverage universe of

KLD has expanded over time. Between 1991 and 2000, KLD covers

only S&P 500 Index firms. Domini 400 Social Index firms, 1,000

Large U.S. Companies, and Large Cap Social Index firms were added

in 2001 and 2002. From 2003 on, KLD covers all the above, with the

addition of 2,000 Small Cap U.S. Companies and Broad Market

Social Index firms.

The Impact of Operational Diversity on Corporate Philanthropy 55

123

the commitment to conduct at least 5 % of purchasing or

subcontracting with businesses owned by women and/or

minorities and 0 otherwise. The mean value of CON-

TRACTING is 0.04. (6) DISABLED equals 1 for a company

that has implemented innovative hiring programs for dis-

abled, or has a superior reputation as an employer of dis-

abled. The mean value of DISABLED is 0.04. (7) GAY

equals 1 for a company that has implemented progressive

policies toward its gay and lesbian employees. The mean

value of GAY is 0.14. (8) OTHER equals 1 for a company

that has made a notable commitment to diversity that is not

covered by other KLD ratings. The mean value of OTHER is

0.003. The mean value of overall operations-level diversity

(DIV_OPER), which is the sum of PROMOTION, WORK/

LIFE, CONTRACTING, DISABLED, GAY, and OTHER

except top-level diversity items (BOARD and CEO), is 0.48

and highly correlated (correlation is 0.16) with our main

research variable, GIVING. The overall diversity sum var-

iable (DIV_COUNT) is also correlated with GIVING (cor-

relation is 0.15), but interestingly our main research variable

DIV_OPER is more correlated with GIVING (correlation

0.16), with fewer individual diversity variables.

Control Variables

Several variables have been suggested by the literature to

affect corporate philanthropy and we include them as

control variables for regression analysis.

• Firm Size: Studies have suggested that bigger firms have higher propensity to give (Amato and Amato

2007; Boatsman and Gupta 1996; Brammer and

Millington 2006). We use logarithm of total assets

(LOGTA) for firm size. We expect positive relationship

between firm size and giving. As giving improves

firms’ reputations, bigger firms will enjoy more benefit

from reputation improvement, ceteris paribus.

• Asset Tangibility: According to trade-off theory of firm’s capital structure or liquid asset holdings, firms

tend to hold more liquid assets when firms’ potential

bankruptcy cost is high and/or future investment

opportunities are high. When intangible assets are a

big part of a firm’s assets, a firm’s potential bankruptcy

cost is high and/or future investment opportunities are

high, and therefore firms tend to hoard more liquid

assets or cash in this situation. In order to have more

cash in hand, firms are likely to spend less money for

corporate giving. On the other hand, according to the

insurance benefit story of corporate giving (Godfrey

2005), firms will give more when firms have more

intangible assets. Hence, the sign of asset tangibility is

an empirical issue. The ratio of a company’s property,

plant, and equipment over total assets (PPE_TA) is

used as a proxy variable for asset tangibility.

• Advertising: A body of literature has found that advertising intensity is positively associated with

corporate giving (Brammer and Millington 2004; Fry

Table 2 Summary statistics: Number of observations for our

sample

Years Number of firms

(Giving = 0)

Number of firms

(Giving = 1)

Total firms having

Giving information

Percent of firms

(Giving = 1)

1991 304 33 337 9.79

1992 306 40 346 11.56

1993 312 43 355 12.11

1994 316 45 361 12.47

1995 378 51 429 11.89

1996 395 50 445 11.24

1997 401 49 450 10.89

1998 438 45 483 9.32

1999 463 42 505 8.32

2000 482 40 522 7.66

2001 857 36 893 4.03

2002 907 42 949 4.43

2003 2,503 45 2,548 1.77

2004 2,607 42 2,649 1.59

2005 2,645 48 2,693 1.78

2006 2,626 59 2,685 2.20

2007 2,644 60 2,704 2.22

2008 2,709 52 2,761 1.88

2009 2,778 51 2,829 1.80

Total/Average 24,071 873 24,944 3.50

56 J. D. Kabongo et al.

123

et al. 1982; Navarro 1988; Zhang et al. 2010). When

consumers’ perceptions are important, companies tend

to spend more money for advertising. We expect

positive relationship between advertising expenses and

corporate giving. The ratio of a company’s advertising

expenses over total assets (XAD_TA) is used for the

advertising effect.

• Profitability: Many studies have suggested that abun- dance of slack resources has a significant impact on

corporate giving (Waddock and Graves 1997, Seifert

et al. 2003, among others). We expect a positive

relationship between profitability and corporate giving.

Return on assets (ROA) is used for profitability.

• Cash: On the one hand, high growth firms and/or more capital-intensive firms may have higher cash balances

(see Seifert et al. 2003). But at the same time, less-

consumer-related firms do not seem to donate as much.

Therefore, the relationship between cash and giving

remains an empirical issue. The ratio of a company’s

cash and marketable securities to total assets

(CASH_TA) is used for Cash.

• Tobin’s Q: Firms with high Tobin’s Q are considered as high growth firms. High growth firms tend to give

less to the public because these firms have to invest

more resources to meet high future growth. On the

other hand, firms with high Tobin’s Q may be well

regarded firms among investors and these successful

firms may give more to public to maintain positive

image among investors. The relation between Tobin’s

Q and Cash is an empirical issue. The ratio of a

company’s market value to its book value (TOBIN’S

Q) is used for Tobin’s Q.

• Industry and year fixed effects: we also include industry (using 2-digit SICs) and year dummies to

control for variation of industries and years.

Univariate Analysis of Diversity and Corporate Giving

As a first step, we calculate the percentage of GIVING for

firms with diverse boards and those without. Panel A of

Table 4 shows that GIVING is higher for firms with diverse

boards than firms with non-diverse boards (8.80 vs. 3.05 %)

and the difference is statistically significant at 1 % level.

TOTAL GIVING, which is total counts of community giv-

ing strengths (broader concept of giving), is also higher for

firms with diverse boards than firms with non-diverse boards

(0.5805 vs. 0.1401). In Panel B, we calculate GIVING and

TOTAL GIVING for firms with board diversity (BOARD)

alone and with both board level diversity (DIVERSITY) and

operational diversity (OPER_DIV). Of firms with board-

level diversity alone, 2.78 % give, while firms with both

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The Impact of Operational Diversity on Corporate Philanthropy 57

123

10.52 %.Our univariate analysis strongly shows that oper-

ational diversity has more impact on corporate giving than

board-level diversity alone.

Model and Results

We test for the relationship between corporate philanthropy

and board and operational diversity with the following base

model:

Giving ¼ fðboard diversity; CEO; operational diversity; control variablesÞ

Three regressions are run to examine the above

relationship and results are reported in Table 5. We find

that companies with diverse boards and operational

diversity programs are more likely to give. Operational

diversity programs are shown to have the stronger impact

than board diversity, while whether CEO is female or from

a diverse group actually has a negative impact on a

company’s giving decision.

Model 1 estimates GIVING with only financial variables

and industry and year dummy variables. As expected, the

coefficients of control variables LOGTA, PPE_TA,

XAD_TA, ROA are positive and statistically significant.

Similar results are reported for Models 2–3. When we add

BOARD from Model 1, the pseudo R 2

increases from 16.5

to 17.2 % in Model 2. But when we further add OPER_

DIV, the pseudo R 2

increases to 20.4 %. When we add both

BOARD and DIV_OPER variables in Model 3, DIV_

OPER is still statistically significant at 1 % level, but the

BOARD is not significant anymore. From these results, we

confirm the univariate result, suggested by Table 4, that

operational diversity has more impact on corporate giving

Table 4 Univariate analysis

Panel A: Based on Board Diversity (BOARD)

Diverse board Non-diverse board t-statistics

Mean Mean

GIVING 0.0880 0.0305 13.29***

TOTAL GIVING 0.5805 0.1401 36.86***

Panel B: Based on Board Diversity (BOARD) and Company Operational Diversity (DIV_OPER)

Diverse Board Plus Operational

Diversity Program

Diverse Board Plus No Operational

Diversity Program

t-statistics

Mean Mean

GIVING 0.1052 0.0278 5.03***

TOTAL GIVING 0.6964 0.1704 11.04***

t-statistics are for testing for differences in means

*** Significance at the 1 % level

Table 5 Firm diversity and giving—empirical results from

logit regressions (dependent

variable = GIVING)

Two-digit SIC is used to control

for industry effects. Standard

errors are robust standard errors

and are adjusted for clustering

at a firm level

* p \ 0.1, ** p \ 0.05, *** p \ 0.01

Variables Model 1 Model 2 Model 3

LOGTA 0.315*** (-0.072) 0.262*** (0.074) 0.041 (0.073)

TOBIN’S Q 0.031 (-0.068) 0.029 (0.068) -0.005 (0.074)

ROA 0.925*** (0.278) 0.916*** (0.286) 0.877** (0.345)

XAD_TA 3.709*** (1.247) 3.441*** (1.271) 2.664** (1.351)

CASH_TA -0.984 (0.866) -1.007 (0.846) -1.650* (0.857)

PPE_TA 0.292 (0.653) 0.236 (0.657) 0.228 (0.699)

CEO -0.902** (0.451) -1.120*** (0.437)

BOARD 0.750*** (0.213) 0.293 (0.211)

DIV_OPER 0.631*** (0.079)

Industry effect Yes Yes Yes

Year fixed effect Yes Yes Yes

Firm fixed effect No No No

Constant -3.524*** (1.213) -2.952*** (1.205) -1.331 (1.345)

Observations 21,451 21,451 21,451

Pseudo R 2

0.165 0.172 0.204

58 J. D. Kabongo et al.

123

than board-level diversity alone, even after controlling for

other important control variables to influence corporate

giving. Our empirical results support H1 and H3, but

reject H2.

The estimated coefficients of advertising expenses

(XAD_TA) given in Models 2 and 3 are positive and sta-

tistically significant at 5 %. This indicates that firms with

high advertising expenses participate more in corporate

philanthropy (Fisman et al. 2006). This is consistent with

what other studies have found: consumer-sensitive com-

panies spend more on advertising and participate more in

corporate philanthropy (Brammer and Millington 2004;

Zhang et al. 2010). The estimated coefficients of return on

assets (ROA) given in Models 2 and 3 are positive and

statistically significant at 1 %. This indicates that, regard-

less of industry, firms that are good at converting their

investments into profits participate more in corporate

philanthropy.

Robustness Tests

In Year 2003, KLD increases sample size dramatically. As

a result, more relatively smaller firms have been added

since Year 2003. To investigate whether different sample

firm sizes influence our major research findings, we sepa-

rate the sample into two periods (1991–2002 and

2003–2009) in Models 1 and 2 of Panel A of Table 6. We

also want to make sure our results are not sensitive to the

definition of corporate giving. In Panel A of Table 6, we

use TOTAL GIVING as a dependent variable for robust-

ness tests. BOARD is significant during 2003–2009, but it

is only marginally significant (at 10 %) during 1991 and

2002. The Sarbanes–Oxley Act of 2002 may explain the

different significance level of BOARD variables for two

different periods. But the DIV_OPER is very significant at

1 % for both periods.

As with most corporate finance and management stud-

ies, omitted variables and endogeneity are major issues that

can lead to wrong interpretations based on spurious

empirical results. We next examine whether our main

results are driven by omitted variables. Unknown firm

characteristics may influence both GIVING and diversity-

related variables (BOARD and DIV_OPER). If this is the

case, even though BOARD and DIV_OPER are not asso-

ciated with GIVING, we may find the BOARD and

DIV_OPER are significant determinants of GIVING. To

address the omitted variable issue, we include a firm fixed

effect model in Model 3 of Table 6. After controlling for

firm fixed effects, board diversity (BOARD) now loses its

significance, but operational diversity (DIV_OPER)

remains highly statistically significant. Panel A of Table 6

demonstrates that our main results are not driven by

specific sample periods and omitted variables: operational

diversity consistently influences corporate giving. Results

from Panel A of Table 6 confirm that operational diversity

programs play a similarly important role on a company’s

decision to overall philanthropic activities, including

innovative giving that supports nonprofit organizations,

charitable giving made outside U.S. borders, support for

housing, primary and secondary education programs, and

so forth.

Panel B of Table 6 uses the Granger causality test to

address the endogeneity issue, which may be caused by

reverse causality. Lev et al. (2010) used a similar method to

address causality issue. In Model 1, the incremental TOTAL

GIVING is a dependent variable and in Model 2, the incre-

mental DIV_OPER is a dependent variable. In Model 1, we

see that past incremental DIV_OPER variables (DIV_O-

PERt-1 - DIV_OPERt-2 and DIV_OPERt-2 - DIV_O-

PERt-3) influence the incremental TOTAL GIVING. But in

Model 2, we do not have an evidence that past incremental

TOTAL GIVING variables (TOTAL GIVINGt-1 -

TOTAL GIVINGt-2 and TOTAL GIVINGt-2 - TOTAL

GIVINGt-3) influence the incremental TOTAL GIVING.

From the results in Panel B of Table 6, we confirm that

operational diversity drives a firm’s philanthropy, and not the

other way around. When operational diversity improves, we

find the firm’s future philanthropy increases. From the

Granger causality test, we also find that board diversity is not

a significant variable for a firms’ future philanthropy activity.

In conclusion, operational diversity influences corporate

giving, and operating diversity is shown to be a more

important driving factor for future corporate philanthropy

than board diversity.

Another endogeneity-related concern is that overall CSR

activities rather than diversity may drive our main findings.

To address whether firms’ overall CSR activities rather

than operational diversity induce more corporate giving,

we split samples into two groups: firms with other CSR

activities versus firms without other CSR activities. Fol-

lowing previous CSR studies using KLD database, we

select five broad categories (Community, Diversity,

Employment, Employee, and Production). After eliminat-

ing two categories, one used for independent variables

(Diversity) and the other used for dependent variables

(Community), we left with three categories (Employment,

Employee, and Production). When there is any strength in

three categories, the firm will be coded as the firm with

other CSR activities. If a firm does not have any strength in

three categories, the firm will be coded as the firm with no

other CSR activity. We found that DIV_OPER remains

highly significant for both groups. But BOARD is only

marginally significant for the group with no other CSR

activity and BOARD is not significant for the group with

other CSR activity group.

The Impact of Operational Diversity on Corporate Philanthropy 59

123

Table 6 Robustness tests. Panel A: Impact of Diversity on Total Giving (dependent variable = TOTAL GIVING), Panel B: Granger Causality Test on Operational Diversity and Corporate Philanthropy, Panel C: Impact of Diversity on Corporate Philanthropy, Controlling for Other CSR

Activities (dependent variable = GIVING)

Panel A

Variables Model 1 Model 2 Model 3

(1991–2002) (2003–2009) (1991–2009 with firm fixed effects)

LOGTA 0.060*** (1.213) 0.060*** (0.006) 0.042** (0.018)

TOBIN’S Q -0.007 (0.011) 0.012*** (0.003) -0.007 (0.004)

ROA 0.011 (0.054) -0.011 (0.015) -0.022* (0.013)

XAD_TA 0.999* (0.540) 0.310* (0.171) -0.102 (0.296)

CASH_TA -0.126 (0.118) 0.040 (0.029) -0.014 (0.048)

PPE_TA -0.006 (0.110) -0.029 (0.031) 0.190* (0.097)

CEO -0.002 (0.066) -0.017 (0.030) -0.043 (0.039)

BOARD 0.106* (0.062) 0.113*** (0.037) 0.015 (0.033)

DIV_OPER 0.270*** (0.029) 0.179*** (0.017) 0.097*** (0.018)

Industry effect Yes Yes No

Year fixed effect Yes Yes Yes

Firm fixed effect No No Yes

Constant 0.278 (0.338) -0.450*** (0.077) -0.179 (0.129)

Observations 5,921 17,929 23,850

R 2

0.305 0.303 0.221

Panel B

Independent variables Model 1 a

Model 2 b

Coefficient Coefficient

Intercept -0.003 (0.003) 0.046*** (0.004)

TOTAL GIVINGt-1 - TOTAL GIVINGt-2 -0.109*** (0.016) 0.005 (0.018)

XAD_TAt-1 - XAD_TAt-2 -0.238 (0.138) -0.325 (0.239)

ROAt-1 - ROAt-2 0.008 (0.014) 0.030 (0.028)

CASH_TAt-1 - CASH_TAt-2 0.008 (0.028) 0.002 (0.055)

TOBIN’S Qt-1 - TOBIN’S Qt-2 -0.003 (0.002) 0.005 (0.004)

BOARDt-1 - BOARDt-2 0.023 (0.016) 0.012 (0.027)

CEOt-1 - CEOt-2 0.004 (0.023) -0.051 (0.045)

DIV_OPERt-1 - DIV_OPERt-2 0.015* (0.008) -0.116*** (0.013)

LOGTAt-1 - LOGTAt-2 -0.000* (0.014) 0.036* (0.020)

PPE_TAt-1 - PPE_TAt-2 -0.078 (0.058) 0.010 (0.084)

TOTAL GIVINGt-2 - TOTAL GIVINGt-3 -0.080*** (0.016) 0.009 (0.017)

XAD_TAt-2 - XAD_TAt-3 0.126 (0.144) 0.017 (0.194)

ROAt-2 - ROAt-3 -0.006 (0.014) 0.027 (0.039)

CASH_TAt-2 - CASH_TAt-3 0.003 (0.022) 0.075 (0.052)

TOBIN’S Qt-2 – TOBIN’S Qt-3 0.002 (0.002) -0.001 (0.004)

BOARDt-2 - BOARDt-3 -0.017 (0.023) 0.014 (0.030)

CEOt-2 - CEOt-3 0.033 (0.024) -0.039 (0.043)

DIV_OPERt-2 - DIV_OPERt-3 0.018** (0.008) -0.084*** (0.012)

LOGTAt-2 - LOGTAt-3 0.019* (0.010) 0.022 (0.019)

PPE_TAt-2 - PPE_TAt-3 0.030 (0.050) -0.100 (0.080)

P value for F test 0.00 0.00

R 2

0.020 0.021

# of Obs 12,216 12,216

60 J. D. Kabongo et al.

123

To address the effect of corporate governance on cor-

porate giving, we use the variables from Risk Metrics

(1997–2008) and Thomson Reuter’s 13 f (1997–2007)

databases in Table 7. Even after including the number of

board members (BOARDSIZE), percentage of female

directors on the board (%FEMALE), percentage of inde-

pendent directors on the board (%INDEP), and percentage

of institutional ownership holdings (%INSTITUTION), the

main research variable, DIV_OPER, remains significant at

1 % level. From this result, we claim that the effect of

DIV_OPER is not much influenced by the quality of a

firms’ corporate governance and the effect of DIV_OPER

on GIVING is not spurious.

Discussion and Implications

The purpose of this study is to investigate how both

operational and board diversity impact corporate philan-

thropy. We conducted a series of robustness tests on a large

sample of both large and small firms in an effort to mitigate

omitted variable and endogeneity issues and to achieve a

better understanding of the impact of operational and board

diversity on corporate giving. The robustness tests included

the control for the firm’s general CSR performance,

important corporate governance variables, board size,

percentage of female directors, percentage of independent

directors, and percentage of institutional ownership hold-

ings. We further find that operational diversity influences

corporate giving much more than board diversity alone.

The commitment to diversity within, and not just at the top-

level of the firm, appears to influence corporate giving

more effectively.

Practical Implications

The findings of the present study have implications for

managers in social sector organizations that depend on

corporate charitable contributions as a source of income. In

the wake of the financial meltdown of 2008, many experts

have expressed concerns that the work of nonprofits,

foundations, and charitable institutions throughout the

United States and the world would be compromised sub-

stantially (see Van Fleet 2010; Urriolagoitia and Vernis

2010). Managers in social sector organizations can utilize

the findings of the present study and look at companies

committed to diversity as a consistent source of corporate

giving. While the scale and impacts of the recent financial

Table 6 continued

Panel C

Variables Model 1 c

Model 2 d

No other CSR activities With other CSR activities

LOGTA -0.036 (0.100) -0.030 (0.085)

TOBIN’S Q -0.084 (0.126) 0.003 (0.081)

ROA 0.836** (0.333) 1.593* (0.856)

XAD_TA 6.513*** (1.529) -0.124 (2.051)

CASH_TA -1.267 (1.080) -2.169* (1.120)

PPE_TA 0.848 (1.209) 0.409 (0.860)

CEO -1.542** (0.751) -0.814* (0.469)

Board 0.592* (0.592) -0.003 (0.248)

DIV_OPER 0.938*** (0.137) 0.461*** (0.087)

Industry effect Yes Yes

Year fixed effect Yes Yes

Firm fixed effect No No

Constant 0.572 (1.376) -1.792 (1.483)

Observations 12,714 6,821

(Pseudo) R 2

0.284 0.130

Two-digit SIC is used to control for industry effects. Standard errors are robust standard errors and are adjusted for clustering at a firm level a

Model 1: regression of change in corporate philanthropy on prior change in diversity. Dependent variable = TOTAL GIVINGt - TOTAL

GIVINGt-1 b

Model 2: regression of change in diversity on prior corporate philanthropy change. Dependent variable = DIV_OPERt - DIV_OPERt-1 c

Model 1 includes firms that do not have other corporate social responsibility (CSR) activities besides corporate philanthropy d

Model 2 includes firms that have other CSR activities besides corporate philanthropy

* p \ 0.1, ** p \ 0.05, *** p \ 0.01

The Impact of Operational Diversity on Corporate Philanthropy 61

123

crisis are unprecedented, the results of the study suggest

that the future of corporate philanthropy relies on compa-

nies being committed to diversity on both board and

operational levels.

Much remains to be learned about the relationship

between firm diversity and corporate philanthropy. First,

our study depended on coded dummy variables pooled

from the KLD index without more specific information. It

would be interesting if future research can replicate the

study and utilize other databases that provide more detail

about individual variables such as the amount of giving in

dollars. In addition, future research can also be designed to

collect reliable data directly from the firms. Although such

studies would represent significant challenges in data col-

lection, researchers can use for example a small sample of

firms with appropriate representativeness to administer

surveys and conduct interviews. Such considerations of

alternative methodology might shed light on the relation-

ship between corporate philanthropy and firm diversity

programs.

Second, although we used a larger sample of companies

than previous studies, our analysis did not focus on specific

industries. Future research should consider the impact of

operational and board diversity on corporate giving along

with its relationship with specific industries, including

consumer sensitive ones. It would also be interesting to

conduct research aimed at determining the impact of dif-

ferent levels of diversity—board and operational—on firm

future performance. Finally, although this study used the

premises of resource dependence theory to demonstrate the

impact of operational and board diversity on corporate

philanthropy, we did not use a direct measure of a firm

interdependence with its environment.

Conclusion

This study contributes to the literature in four ways. First,

our findings are consistent with previous research that

board diversity influences corporate giving (Wang and

Coffey 1992; Williams 2003). Moreover, the significant

presence of women, minorities, and/or people who are

disabled influences more corporate giving. With women,

minorities, and/or the disabled on the board of directors,

corporations seek linkages with the most influential

resources (Pfeffer and Salancik 1978) and have access to

more ideas, information, legitimacy, and communication

channels (Daily and Dalton 2003; Boyd 1990; Hillman and

Dalziel 2003; Pfeffer and Salancik 2003). This suggests

that the presence of diverse board members who bring and

control unique resources results in organizational behavior

of corporate giving. As Pfeffer and Salancik (2003) noted,

the actions and decisions of organizations are the results of

distribution of power and control within organizations. Our

findings on the impact of board diversity on corporate

giving add support to recent studies by Bear et al. (2010)

and Marquis and Lee (2011). In fact, Bear et al. (2010)

found that the increased number of female board members

was positively related to KLD strength ratings for CSR,

which includes corporate giving. Marquis and Lee (2011)

concluded that corporations with a greater proportion of

women senior managers had higher corporate philanthropic

contributions. However, our analysis was not limited to the

presence of women on board of directors, as it included

minorities and/or disabled board members. The results of

our study shed light on the strength of the relationship

between board diversity and corporate giving.

Second, this study extends the topic of prior studies

regarding board composition (Wang and Coffey 1992;

Williams 2003; Bear et al. 2010) by analyzing operational

diversity. We investigate the impact of operational diversity

and board diversity on corporate giving and find that the

former is a more important indicator that predicts future

corporate giving. This suggests that the implementation of

diversity programs at the operational levels materializes

Table 7 Corporate philanthropy, diversity, and corporate governance (dependent variable = GIVING)

Variables Model 1 a

Model 2 b

LOGTA -0.103 (0.142) -0.097 (0.138)

TOBIN’S Q -0.012 (0.090) -0.038 (0.093)

ROA 4.157** (1.735) 5.520*** (2.039)

XAD_TA 4.491* (2.349) 6.653** (2.715)

CASH_TA -3.416*** (1.246) -3.636*** (1.196)

PPE_TA -0.781 (1.273) -1.098 (1.345)

CEO -1.169** (0.558) -1.060* (0.594)

DIV_OPER 0.483*** (0.106) 0.404*** (0.117)

BOARDSIZE 0.109** (0.052) 0.099* (0.053)

INDEPDIR % 0.224 (0.682) 0.789 (0.681)

FEMALE % 4.015*** (1.072) 4.043*** (1.120)

INSTITUTION % -1.648** (0.777)

Industry effect Yes Yes

Year fixed effect Yes Yes

Firm fixed effect No No

Constant -2.055 (1.684) -1.053 (1.664)

Observations 6,417 5,522

(Pseudo) R 2

0.206 0.209

Two-digit SIC is used to control for industry effects. Standard errors

are robust standard errors and are adjusted for clustering at a firm

level a

Model 1 controls for board size and percentage of independent

directors and female directors on the board b

Model 2 controls for board size and percentage of independent

directors as well as percentage of institutional share holders

* p \ 0.1, ** p \ 0.05, *** p \ 0.01

62 J. D. Kabongo et al.

123

diversity while addressing employee needs. Companies

value diversity at the firm level and commit to it as a firm

resource (Barney 1991; Wernerfelt 1984) for strategic pur-

poses (Dwyer et al. 2003; Roberson and Park 2007; Richard

2000; Richard et al. 2007). An operational diversity program

is strong evidence that the firms feel the need to be like their

customers, including the need to understand and communi-

cate with them in terms that reflect their concerns. Opera-

tional diversity would result in more interdependent

relationships with the environment than board diversity

alone. The more the firm implements diversity programs at

management, employee, and supply chain levels, the more

likely the levels of pressures and constraints will increase.

Consistent with resource dependence theory, a firm would

minimize the environmental constraints resulting from

operational diversity and control over resources exercised by

interest groups by engaging in philanthropic activities. As

noted earlier, several studies have demonstrated that cor-

porate philanthropy can help a firm reduce the risk associ-

ated with resource acquisition (Berman et al. 2005; Haley

1991) and risk associated with the loss of resources already

controlled (Barnett and Salomon 2006; Brammer and Mil-

lington 2004; Godfrey 2005).

Third, the study demonstrates that having a company’s

CEO who is a woman or a member of a minority group

may not be sufficient to impact its charitable giving. Pre-

vious studies have analyzed the impact of the contribution

of women and minorities on corporate giving in conjunc-

tion with their roles as members of the board of directors

(see Bear et al. 2010; Marquis and Lee 2011; Wang and

Coffey 1992; Williams 2003). Our study looked specifi-

cally at their role as CEO and could not find a correlation

with corporate giving.

Finally, the study’s methodological strength contributes

to existing literature in the field of corporate giving.

Beyond the analyses of a large panel data set on a sample

of U.S. firms over the period of 1991–2009, we try to

mitigate omitted variables and endogeneity issues to the

best of our ability. For example, the impact of diversity on

corporate giving is significant, regardless of corporations’

participation in other CSR activities; firm fixed effect is

used to minimize other unknown factors’ influence on both

corporate giving and diversity. Granger causality test is

used to examine the direction of causality between diver-

sity and corporate giving. The numbers of female and

independent directors as well as institutional ownership are

included to control for the impact of corporate governance

on corporate philanthropy. With rigorous regression anal-

yses and after a battery of robustness tests, the effect of

diversity on corporate giving, especially that of operational

diversity, not only survives but also remains strong.

In summary, our study goes beyond simple correlation

and ordinary least square analyses to mitigate endogeneity

problems often overlooked in previous research in corpo-

rate philanthropy (Garcia-Castro et al. 2010). Previous

corporate giving studies have suffered from small sample

sizes and methodological limitations. We hope that the

results provided herein will assist researchers, practitioners,

and other stakeholders in deepening their understanding of

the predictors of corporate giving.

Acknowledgments The authors would like to thank Dr. Thomas Clarke, Section Editor and two anonymous referees of the Journal of

Business Ethics for comments and suggestions that greatly improved

the paper’s quality. All remaining errors are our own.

Appendix

Description of main variables

Variable Description

GIVING (Com_Str_a) GIVING equals 1 for a company that has

consistently given more than 1.5 % of

trailing 3-year net earnings before taxes

(NEBT) to charity over the period

1991–2009, or has been notably generous

in its giving, and 0 otherwise

TOTAL GIVING

(Com_Str_num)

Total counts of community giving strength

CEO (Div_Str_a) CEO equals 1 for a company’s chief

executive officer being a woman or a

member of a minority group, and 0

otherwise

PROMOTION

(Div_Str_b)

PROMOTION equals 1 for a company that

has made progress in the promotion of

women and minorities, particularly to line

positions with profit-and-loss

responsibilities in the corporation, and 0

otherwise

BOARD (Div_Str_c) BOARD equals 1 for a company where

women, minorities and/or disabled hold

four seats or more (with no double

counting) on the board of directors, or one-

third or more of the board seats if the board

number is less than 12

WORK/LIFE

(Div_Str_d)

WORK/LIFE equals 1 for a company that

has outstanding employee benefits or other

programs addressing work/life concerns,

e.g., childcare, elder care, or flextime, and

0 otherwise

CONTRACTING

(Div_Str_e)

CONTRACTING equals 1 for a company

that does at least 5 % of its subcontracting,

or has a demonstrably strong record on

purchasing, with women—and/or

minority—owned businesses, and 0

otherwise

DISABLED

(Div_Str_f)

DISABLED equals 1 for a company that has

implemented innovative hiring programs

for disabled, or has a superior reputation as

an employer of disabled

The Impact of Operational Diversity on Corporate Philanthropy 63

123

Appendix continued

Variable Description

GAY (Div_Str_g) GAY equals 1 for a company that has

implemented progressive policies toward

its gay and lesbian employees

OTHER (Div_Str_x) OTHER equals 1 for a company that has

made a notable commitment to diversity

that is not covered by other KLD ratings

DIV_OPER

(Div_Str_extra)

DIV_OPER equals the count of all strengths

the company has received in the category

of diversity minus BOARD and CEO.

(DIV_OPER = DIV_COUNT – BOARD

- CEO). It measures operational diversity

level of the company

DIV_OPER_N

(Div_Str_Robust)

DIV_OPER_N is a narrower definition

for DIV_OPER.

DIV_OPER_N = DIV_OPER – WORK/

LIFE – GAY

DIV_COUNT

(Div_Str_num)

DIV_COUNT equals the count of all

strengths the company has received in the

category of diversity

LOGTA LOGTA is the logarithm of a company’s

total assets in million US dollars

TOBIN’S Q Tobin’s Q is defined as the ratio of a

company’s market value to its book value

ROA ROA equals a company’s return on assets

XAD_TA XAD_TA equals a company’s advertising

expenses over total assets

CASH_TA CASH_TA equals a company’s cash,

marketable securities over total assets

PPE_TA PPE_TA equals a company’s property, plant,

and equipment over total assets

BOARDSIZE BOARDSIZE is the number of board

members

%FEMALE %FEMALE is the percentage of female

directors on the board

%INDEPDIR %INDEPDIR is the percentage of

independent directors on the board

%INSTITUTION %INSTITUTION is the percentage of

institutional shareholders

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