Motives for corporate philanthropy propensity: Does short selling matter?

We examine the impact of short selling on a firm's CP propensity in a sample of Chinese firms. Drawing from the strategic view of CP literature, we postulate that when a firm faces weaknesses, it has incentive to use CP to divert public attention. Our results, as expected, suggest that when there is a surge in short selling, a firm is more likely to make CP in a given year. The findings are robust to endogeneity concerns and different measure of CP propensity. Sub-sample analyses use corporate transparency, operating results, corporate governance, and prior security violation suggest that when a firm is less transparent, having poor operating performance, an ineffective corporate governance, and anticipated future security violation, it is more likely to using CP to divert the public attention.