Abstract Although it has been evidenced that corporate donation can optimize financing conditions for firms, the impact could be limited in the firms with bad corporate governance and high risk. Based on the Chinese listed firms, we investigated the relationship between corporate donation and investment-cash flow sensitivity. We find that corporate donation can significantly moderate the degree of investment-cash flow sensitivity through creating a friendlier financing conditions, while we only obtain this result in the samples with good corporate governance. Further, we find that the relationship between corporate donation and investment-cash flow sensitivity is weakened when the firm is in high risk. It indicates that the effectiveness of the strategy of corporate donation depends on the operation performance of the particular firm. Finally, as it is conjected that corporate philanthropy also could bring more agency problem, we find a positive relationship between donation and various of consequences related with agency problem, such as overinvest, more SG&A and higher compensation for top managers.
