Charity Rewards Generous Companies

The Wall Street Journal poses a challenge to corporations:

Ask investors what they think of the ever-increasing sums U.S. corporations donate to charity and many might call it a waste of shareholder money.

Corporate managers should focus on enhancing the bottom line, they say, which is, after all, the job they were hired to do.

But what if corporate charity enhances the bottom line? And what if returns on those charitable dollars can be measured not in mere percentages, but in outsized multiples?

According to Baruch Lev, a professor at New York University's Stern School of Business, for every tax-deductible dollar the average corporation gives to charity, it should expect profit to rise by roughly $2 to $3.

A 200% to 300% return may sound too good to be true from truly doing good, but it is amply supported in a study by Prof. Lev and two other professors, Christine Petrovits, also of the Stern School, and Suresh Radhakrishnan of the University of Texas at Dallas School of Management.