This study derived hypotheses for empirical research based on a simple theoretical model developed to examine the effects of charitable donations and entertainment expenses on firm performance, and conducted empirical analysis on KOSPI-listed firms from 1992 to 2007. The results showed that expenditures on charitable donations and entertainment expenses in Korea had a positive effect on firm performance, and that exceeding the entertainment expense limit did not have a negative effect on firm performance. However, while charitable donations by bankrupt firms did not differ from those of financially sound firms, entertainment expenses by bankrupt firms had a highly negative effect on firm performance. Furthermore, entertainment expenses exceeding the statutory limit were found to further exacerbate this negative effect. Although charitable donations are expenditures not directly related to a firm's business operations, the findings suggest that they can indirectly enhance the firm's image and thereby have a positive effect on performance.