Sales Go Up $6 for Every $1 Companies Add to Giving Budgets, Report Says

By Ian Wilhelm

For every new dollar a retail company, bank, or popular-goods manufacturer allocates to its charitable-giving budget, it can expect sales to grow on average by $6, according to a study by several university researchers who attempted to quantify the economic benefit of corporate giving.

The study suggests that the $14-billion donated in cash and products by corporations in 2005, the most recent year data are available, is helping to generate a significant amount of income for many businesses. Those findings should convince corporations to approach their philanthropy more seriously, say the university scholars.

"When firms increase their charitable giving, then we see in the future more revenue growth," says Christine Petrovits, an assistant professor of accounting at New York University Stern School of Business and a co-author of the report.

Ms. Petrovits conducted the research with Baruch Lev, a finance professor at Stern, and Suresh Radhakrishnan, a professor of accounting and information management at the University of Texas at Dallas School of Management.

The researchers examined the giving and revenue of 251 corporations from 1989 to 2000.

The study accounts for several mitigating factors, such as the state of the national economy and whether a company had managers who were particularly effective at increasing sales and philanthropy budgets simultaneously.

Not surprisingly, the study found that companies that sell directly to individual consumers, such as retail stores, financial institutions, and electronics manufacturers, are the ones that receive the economic benefit from giving.

"Contributions have this advertising effect to them, this image-enhancing effect to them. What we see is giving goes up first and then we see the sales go up," Ms. Petrovits explains.

For other corporations, such as ones that sell goods primarily to businesses, the connection between philanthropy and revenue is less direct and harder to measure, says Ms. Petrovits. She says, however, that a steel company, for example, may support a university's engineering program and reap a financial benefit eventually from having a better educated work force.

But while the study may please charities, it also found that when a company's sales increase, donations do not always grow in turn. "We did not see firms growing their revenue and then giving more in the future," Ms. Petrovits says.

She recommends that nonprofit groups use her economic argument to convince companies to give more, as opposed to accusing them of being misers. "They shouldn't say, Oh, you have extra resources, give it to us. They should say, Give us your resources because look at what we can do for you," she says.

For a company to turn its philanthropy into financial gain, the report suggests that a business advertise its giving in television commercials, on billboards, and through other marketing efforts.

One company already carrying out that recommendation, Wal-Mart Stores, in Bentonville, Ark., this month announced it will broadcast a national TV advertisement that highlights its charitable contributions and other socially responsible efforts.

The ad proclaims that the retail giant donated $245-million in cash and products in 2006, a $19-million increase from 2004.

If Ms. Petrovits calculations are correct, last year's giving could help increase Wal-Mart's sales by as much as $114-million.

The 34-page report, http://ssrn.com"Is Doing Good Good for You? Yes, Charitable Contributions Enhance Revenue Growth", is available free.