Aggravation or Alleviation? The Dual Role of Corporate Donations in Crisis Management: A Signal Incongruence Perspective

ABSTRACT While prior research suggests that corporate philanthropy can be strategically employed as a “pre‐crisis” insurance‐like mechanism to obfuscate opportunistic motivations, the effectiveness of corporate philanthropy as a “post‐crisis” remedial tool, and the contextual conditions shaping its effectiveness, remain underexplored. Drawing on a sample of Chinese listed companies from 2011 to 2019, we investigate the impact of both corporate misconduct and industry misconduct on the focal firm's debt financing capacity. We then analyze whether donations function as an effective “post‐crisis” management tool to mitigate creditor risk perceptions. The findings reveal that both corporate misconduct and industry misconduct significantly impair the debt financing capabilities of the focal firms. However, the crisis management effectiveness of corporate donations is context‐dependent. In the case of firm misconduct, donations exacerbate signaling incongruence, thereby amplifying creditor concerns regarding opportunistic behavior. Conversely, in the context of industry misconduct, corporate donations may serve as a “crisis insulation” tool to reduce the signal incongruence and mitigate the negative spillover effect. This research contributes to the signaling literature by demonstrating the contingent nature of CSR's signaling value and provides insights for firms seeking to navigate the impact of misconduct through strategic crisis management.