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Principal–Principal Conflicts and Corporate Philanthropy: Evidence from Chinese Private Firms

Listed author(s):
  • Sihai Li

    ()

    (Zhongnan University of Economics and Law)

  • Huiying Wu

    ()

    (University of Western Sydney)

  • Xianzhong Song

    ()

    (Jinan University)

Registered author(s):

    Abstract The principal–principal perspective suggests that controlling shareholders have excessive influence on corporate philanthropy and may direct corporate funds to charitable causes to support their personal interests. Analysis of a sample of Chinese private firms listed on the Shenzhen or Shanghai stock exchange between 2004 and 2011 shows that (1) there is a significant and negative relationship between corporate giving and the share held by the largest shareholders, suggesting that controlling shareholders are opportunistic in directing corporate charitable contributions; (2) there is a significant and positive relationship between corporate giving and the political connections of the largest shareholders and their agents, suggesting compatibility between corporate contributions and the personal interests of the controlling shareholders; (3) there is a stronger negative relationship between corporate giving and the share of the company held by the largest shareholders in politically connected firms, suggesting that political connections contribute to increased opportunistic corporate giving. Overall, our study provides important evidence for the “one dominant controlling shareholder” phenomenon (yigududa) by testing and extending the principal–principal framework and showing that the largest shareholders of Chinese firms appear to donate to charitable causes that ultimately serve their personal interests at the expense of minority shareholders.

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    File URL: http://link.springer.com/10.1007/s10551-015-2720-3
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    Article provided by Springer in its journal Journal of Business Ethics.

    Volume (Year): 141 (2017)
    Issue (Month): 3 (March)
    Pages: 605-620

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    Handle: RePEc:kap:jbuset:v:141:y:2017:i:3:d:10.1007_s10551-015-2720-3
    DOI: 10.1007/s10551-015-2720-3
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