Getting back a level playing field under state-guided market economy: Evidence from quake donations by non-state-controlled companies in China

The rise of state-guided market economy is a striking development in the world economy, and China is one leading example. Under China's state-guided market economy, non-state-controlled corporations typically face discrimination in business operations, and have adopted the strategy of making donations to government-favored causes to capture the government, win governments’ trust and retrieve a level playing field. With an event study of corporate donations to Wenchuan earthquake relief campaign in 2008, we detect strong and positive market reactions to non-state-controlled donor firms, especially those ex-ante low-efficiency firms operating in regions with a high degree of government intervention, where the ownership-based discrimination is particularly severe and donations can be especially effective in redressing discriminatory treatments. Donor firms also display improvements in long-term performance indicators, which suggests an expansion of business opportunities. We also show that this strategy is fundamentally different from corruption (bribing bureaucrats), and also argue that it differs from corporate political or campaign contributions in mature democracies.