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Are Politically Endorsed Firms More Socially Responsible? Selective Engagement in Corporate Social Responsibility

Abstract

The state plays a major role in corporate social responsibility (CSR) in emerging and transitional economies and often influences firms through political connection, and hence knowing how firms respond to the state’s CSR initiatives can inform policy making and has important implication on the sustainability of society and environment. However, existent studies show conflicting results on politically connected firms’ CSR participation. We examine the relationship between political endorsement and firms’ engagement in different types of CSR simultaneously. Using a representative sample of more than 1,000 private firms in the early 2000s, we find that politically endorsed firms engage more in philanthropic donation, but less in environmental practices, which impose higher costs and constraints than philanthropy. This is consistent with our explanation that they attempt to maintain legitimacy and discretion through selective engagement in CSR. Our study contributes to research on CSR in transitional economies by reconciling conflicting findings about the CSR engagement of politically connected firms, provides a new lens to illuminate firms’ strategic response in CSR, and has important policy implications.

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Notes

  1. 1.

    Examples include ‘The call for contributing to local schools’ by Qujing city’s municipal government, Yunnan province, 2003 (Qujing city municipal government official website, http://www.qj.gov.cn/zcfg/qjgfxwj/ellsnd/200610093648-1.html) and ‘The plan for environmentally sustainable development’ by Foshan city’s municipal government, Guangdong province, 2003 (Foshan city municipal government official website, http://www.foshan.gov.cn/zwgk/fsgb/fsrmzfwj/201009/t20100928_1871268.html).

  2. 2.

    ‘Delegates of People’s Congress in Guangdong Province donated 0.6 billion RMB’ (http://npc.people.com.cn/GB/7359299.html).

  3. 3.

    The percentage of private firms in the whole sample (91%) was comparable with national statistics: the Ministry of Commerce reported that private firms accounted for 92% of firms nationwide in 2007 (http://www.gov.cn/ztzl/2007-08/10/content_712562.htm). The sampled firms’ profitability (pretax ratio of profit to fixed capital) was 25.2%, similar to the rate (between 20% and 25%) found in Bai et al. (2007).

  4. 4.

    Given the benefits of obtaining government awards, we can reasonably assume that firms are willing to disclose award information to the public through their own websites or news reports. Information collected on awards is therefore less likely to suffer from a downward bias.

  5. 5.

    Firms that did not report their donation amount are also coded as 0; omitting these firms from the analysis does not significantly alter our results.

  6. 6.

    When using the quartile measure, we test two ways of coding the categories for selective engagement. First, we consider firms that spent in the top 25 percentile (high) on corporate donation and in the bottom 25 percentile (low) on environmental protection as dedicated to philanthropy only (category 1). Second, we consider firms that spent in the top 25 percentile (high) on corporate donation and below median on environmental protection as dedicated to philanthropy only. Other categories are coded accordingly. The pattern of findings is the same as reported here.

  7. 7.

    We code firms that spent at the median level of their same-industry peers as in the above-median group. Coding them in the below-median group does not change our results.

  8. 8.

    Delegates to the two government bodies are elected directly at the county level and indirectly at the other three levels (prefectural, provincial and national level) by lower-level members. These are part-time positions. Although ‘election’ is involved in the process, political scientists have provided evidence that the candidacy is normally bestowed by the government; thus, there is much room for corporate leaders to strive for such a candidacy-cum-election (O’Brien 1994).

  9. 9.

    We also try coding them as 1 if state-owned firms were ranked within the top two, and our results remain unchanged.

  10. 10.

    To predict political endorsement, we include the control variables used in the main analysis and two more variables: the firm’s ownership history (i.e., whether the private firm was transformed from a state-owned enterprise) and the top executive’s past work experience in the government, which may enhance connection with the government and so facilitate obtaining endorsement (O’Brien 1994). In lieu of a measure for previous donations, the two variables of previous CSR plan and membership in CSR-promoting industrial associations provide a reasonable proxy, given the strong association between these variables and corporate donation (Galaskiewicz and Burt 1991).

  11. 11.

    Government awards are based on criteria different from awards that are determined by consumers or peers. Awards granted by the government or its agencies are based mostly on the impact that firms have on local development, whereas professional associations typically award firms based on their product or capability.

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Appendix

Appendix

See Tables 6 and 7.

Table 6 Probit models predicting the probability of government endorsement
Table 7 Regression analyses of private firms’ environmental expenditure

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Luo, X.R., Wang, D. Are Politically Endorsed Firms More Socially Responsible? Selective Engagement in Corporate Social Responsibility. J Bus Ethics 170, 535–555 (2021). https://doi.org/10.1007/s10551-019-04367-6

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Keywords

  • Corporate social responsibility
  • Political endorsement
  • Transitional economy
  • China