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Government Initiated Corporate Social Responsibility Activities: Evidence from a Poverty Alleviation Campaign in China

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Abstract

In 2016 the Chinese government initiated a nationwide campaign aiming to eliminate poverty in China by 2020. Over 20% of listed firms in China have made significant contributions to the campaign. Using hand-collected data on listed firms’ contributions to the campaign and multivariate analyses, we examine whether managers’ and politicians’ personal incentives play an important role in firms’ contributions to the campaign. The results show that firms are more likely to contribute if they are state-owned and managers are appointed by governments, if managers have a higher risk of being targeted in a concurrent anti-corruption campaign, if the political leaders in their province are new or intend to seek promotion, and if managers or directors have experienced poverty in their early life. The results suggest that it is important to consider managers’ and politicians’ personal incentives in CSR activities that could have a grand social impact.

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Notes

  1. Although there is no consensus definition of CSR, recent studies usually follow the ESG framework that focuses on environmental (E), social (S) and governance (G) issues. See Garriga and Melé (2004) for a discussion of various concepts and theories of CSR. For a recent review of the CSR literature, please see Kitzmueller and Shimshack (2012) and Wang et al. (2016).

  2. By examining the poverty alleviation, our study focuses on the social element in the ESG framework of CSR.

  3. A 2012 report by the World Bank shows that the number of Chinese people living on less than US$1 a day decreased from 730.4 million in 1981 to 97.4 million in 2008, and the percentage of the Chinese population living on less than US$1 a day decreased from 73.5% in 1981 to 7.4% in 2008. The report is available at: https://siteresources.worldbank.org/INTPOVCALNET/Resources/Global_Poverty_Update_2012_02-29-12.pdf. The World Bank estimates that in 2014, 18.5 million Chinese people living on less than US$1.90 a day (the new standard to define poverty).

  4. The idea of targeted poverty alleviation was first raised in 2013 by President Xi Jinping. The goal of “eliminating poverty by 2020” was first set in the decision made by the Central Committee of China Communist Party and the Central Government of China on November 29, 2015 (see the official news report at https://www.gov.cn/xinwen/2015-12/07/content_5020963.htm.). The goal was also subsequently set in the 13th Five-Year Plan, approved by the People’s Congress of China on March 16, 2016. After this approval, the nationwide campaign started.

  5. See, for example, https://www.concernusa.org/story/top-9-causes-global-poverty/.

  6. The average exchange rate was about 6.5 yuan per US dollar in 2016 2017 and 2018. The statistics reported here are based on the sample with continuous variables winsorized at the top 1% level.

  7. Only about one third of SOEs participated in the campaign, suggesting that participation is not compulsory, which allows us to examine variations in firms’ incentives to participate.

  8. Mainland China has 22 provinces, 5 autonomous areas, and 4 cities under direct administration of the central government. They are at the same level in China’s administration system. For brevity, we refer to all of them as provinces.

  9. Prior studies have shown that CSR is positively related to government subsidies (Lin et al. 2015), government procurement contracts (Flammer 2018), firm value (Zolotoy et al. 2019), and positive media coverage (Cahan et al. 2015).

  10. For example, Lise Kingo, the CEO and Executive Director of United Nations Global Compact, stated that “For governments and business, working together to build a prosperous, net zero carbon economy by 2050 is critical.” Available at https://www.unglobalcompact.org/news/4466-08-21-2019.

  11. Visser (2008) and Jamali and Karam (2016) survey academic studies on CSR in developing countries.

  12. World Bank Annual Report 2017, available at https://pubdocs.worldbank.org/en/908481507403754670/Annual-Report-2017-WBG.pdf.

  13. There are 17 goals, listed on the website: https://www.un.org/sustainabledevelopment/sustainable-development-goals/.

  14. Following the World Bank, China uses income to define poverty and the threshold has increased over time. Since 2011, people earning less than 2300 yuan per year were classified as living in poverty.

  15. The announcement (in Chinese) is available at the CSRC website: https://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwdd/201609/t20160909_303220.html.

  16. For example, hundreds of SOEs and over 35,000 private firms have participated in the campaign and have specific tasks to do to help the poor. See https://www.xinhuanet.com/fortune/2017-2/09/c_1122085482.htm.

  17. For more examples and details, please see https://rmfp.people.com.cn/n1/2018/0920/c406725-30304314.html.

  18. The notice is at: https://www.szse.cn/main/aboutus/bsyw/39763006.shtml and https://www.sse.com.cn/aboutus/mediacenter/conference/c/c_20161230_4223294.shtml. The notice also reported the contributions to the poverty alleviation campaign made by the two stock exchanges themselves.

  19. Available at https://www.unido.org/our-focus/advancing-economic-competitiveness/competitive-trade-capacities-and-corporate-responsibility/corporate-social-responsibility-market-integration/what-csr.

  20. Moon and Shen (2010) provide an excellent survey of CSR studies in China.

  21. The report (in Chinese) is available at https://www.sasac.gov.cn/n2588025/n2588119/c8013520/content.html.

  22. For example, an article in Financial Times on August 3, 2018 says that “Analysts say the companies are investing heavily in the (anti-poverty) scheme in an attempt to curry favour with Beijing, which has pledged to crack down on debt and retains control of most of the country’s financial system” (available at https://www.ft.com/content/093860ce-80c5-11e8-bc55-50daf11b720d).

  23. In mainland China’s bureaucratic system, government officials are ranked at five levels (from top to bottom): state, province, prefecture, county, and township.

  24. The definition of poverty experience implies that managers with poverty experience are likely from the same age cohort. While it is plausible that the experience of the great famine has the most significant impact on their life, there may be other (uncontrolled) confounding effects related to this particular age cohort.

  25. Section "Campaign contributions and philanthropic donations" provides more analysis on whether participating firms replace philanthropic donations with contributions to the poverty alleviation campaign. In calculating charitable donations, we explicitly remove campaign contributions in 2016 2017 and 2018 for firms that participate in the poverty alleviation campaign.

  26. The data on firms’ poverty alleviation contributions are reliable for two reasons. First, the National Audit Office of China regularly audits the source and use of funds contributed to the campaign. Media reports show that misuse of funds can lead to penalties. Second, the auditing standards in China (Standard 1521) require auditors to read “other information” contained in annual reports and ensure that there is no significant inconsistency between “other information” and reported financial statements. Information about campaign contributions is thus part of “other information” in annual reports. Because the contributions to the poverty alleviation campaign represent outflow of cash or other assets, auditors have to ensure the information about campaign contributions is consistent with that in the cash flow statement and the balance sheet, suggesting the same level of assurance for the information in financial statements and in the disclosure of campaign contributions.

  27. The lists (in Chinese) are available at the center’s website: https://www.nfzmbrand.com/Response/channels/202.html.

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Acknowledgements

We thank two anonymous reviewers, Peter Clarkson, Simon Fung, Xiaolu Hu (discussant), John Roberts, Greg Shailer (editor), Joyce Yu and participants in 2019 Financial Markets and Corporate Governance conference for helpful comments

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  1. Department of Accounting and Finance, School of Management, Xi’an Jiaotong University, Xi’an, China

    Yuyuan Chang & Jianling Wang

  2. Department of Accounting, Monash Business School, Monash University, Melbourne, Australia

    Wen He

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Chang, Y., He, W. & Wang, J. Government Initiated Corporate Social Responsibility Activities: Evidence from a Poverty Alleviation Campaign in China. J Bus Ethics 173, 661–685 (2021). https://doi.org/10.1007/s10551-020-04538-w

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