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In the name of charity: Political connections and strategic corporate social responsibility in a transition economy

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  • Lin, Karen Jingrong
  • Tan, Jinsong
  • Zhao, Liming
  • Karim, Khondkar

Abstract

This study investigates whether firms in China use corporate social responsibility (CSR) to build political networks and, if so, how such CSR decisions affect firm performance. We bypass the empirical difficulty of measuring the value of political networks by using an event study approach. Specifically, we examine how abrupt termination of existing political connections caused by replacement of city mayors affect Chinese listed companies' CSR choices. We find that when a mayor is replaced, the level of and the propensity for CSR activity increase. Such increases are more prominent in firms for which political connections are more valuable, namely, nonstate-controlled firms, smaller firms, and firms operating in cities ruled by more corrupt government. In addition, we find that firms that spend resources to bond with a new government via CSR activities are rewarded: these firms receive higher levels of government subsidies or have a greater propensity to receive future government subsidies. These firms also outperform firms that do not invest in political networking via CSR. Our study adds direct evidence to how and through what channel CSR affects firm performance. We also contribute to the CSR literature on politically motivated CSR strategies.

Suggested Citation

  • Lin, Karen Jingrong & Tan, Jinsong & Zhao, Liming & Karim, Khondkar, 2015. "In the name of charity: Political connections and strategic corporate social responsibility in a transition economy," Journal of Corporate Finance, Elsevier, vol. 32(C), pages 327-346.
  • Handle: RePEc:eee:corfin:v:32:y:2015:i:c:p:327-346
    DOI: 10.1016/j.jcorpfin.2014.10.007
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    Cited by:

    1. repec:eee:finlet:v:25:y:2018:i:c:p:90-95 is not listed on IDEAS
    2. Cull, Robert & Li, Wei & Sun, Bo & Xu, Lixin Colin, 2015. "Government connections and financial constraints: Evidence from a large representative sample of Chinese firms," Journal of Corporate Finance, Elsevier, vol. 32(C), pages 271-294.
    3. Douglas Cumming & Wenxuan Hou & Edward Lee, 2016. "Business Ethics and Finance in Greater China: Synthesis and Future Directions in Sustainability, CSR, and Fraud," Journal of Business Ethics, Springer, vol. 138(4), pages 601-626, November.
    4. McGuinness, Paul B. & Vieito, João Paulo & Wang, Mingzhu, 2017. "The role of board gender and foreign ownership in the CSR performance of Chinese listed firms," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 75-99.
    5. Boubakri, Narjess & El Ghoul, Sadok & Wang, He & Guedhami, Omrane & Kwok, Chuck C.Y., 2016. "Cross-listing and corporate social responsibility," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 123-138.
    6. repec:gam:jsusta:v:10:y:2018:i:9:p:3309-:d:170155 is not listed on IDEAS

    More about this item

    Keywords

    Corporate social responsibility (CSR); Firm performance; Political connection; Transition economy; Strategic CSR;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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