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Do the resignations of politically connected independent directors affect corporate social responsibility? Evidence from China

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  • Li, Qian
  • Guo, Mengting

Abstract

This paper explores how forced resignations of politically connected independent directors (political IDs for short) affect the performance of corporate social responsibility (CSR). Using a Communist Party of China regulation that forbids political officials from sitting on boards as an exogenous shock, this paper finds that the forced resignations of political IDs are associated with a decrease in firms' CSR performance. We further find that such reductions are not attributable to decreases in capital and knowledge resources. However, the negative association between political IDs' forced resignations and CSR performance is more prominent for firms under more political pressure, such as when political IDs are high-ranking incumbents, when firms located in the province with a high level of government intervention, or in polluting industries, and when firms have no government shareholdings. Therefore, we conclude that the reduction in CSR performance is due to the release of political pressure after the resignations of political IDs. Our results are robust to alternative CSR measures, varied sample periods, and sample selection bias correcting. The results of placebo tests also confirm our findings. Our study shows that political pressure imposed by politicians on firms is an important determinant of CSR.

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  • Li, Qian & Guo, Mengting, 2022. "Do the resignations of politically connected independent directors affect corporate social responsibility? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:corfin:v:73:y:2022:i:c:s0929119922000177
    DOI: 10.1016/j.jcorpfin.2022.102174
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    2. Qihang Xue & Huimin Wang & Caiquan Bai, 2023. "Local green finance policies and corporate ESG performance," International Review of Finance, International Review of Finance Ltd., vol. 23(4), pages 721-749, December.
    3. Wang, Xiaoming & Xu, Tingting, 2022. "Pay of political directors in China," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
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    More about this item

    Keywords

    Politically connected independent directors; Political connection disruptions; CSR; China;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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