Investing Strategy in Pharmaceutical Companies Based on Corporate Donations

Given the growing trend in ESG investing, we study whether a single measurable ESG criteria, charitable donations, can predict stock return controlling for other investing characteristics. Using a two-stage least squares (2SLS) specification, we identify a positive relationship between a firm’s cash donations and annual stock return. Moreover, we find that the relationship is more pronounced for pharmaceutical companies, which often are the biggest corporate donors to charities.