Demonstration zones reform and corporate philanthropy: Evidence from China

Abstract

Place-based policy plays an important role in economic growth, but its impact on corporate philanthropy is relatively unknown. The transformation and upgrading demonstration zones reform, a place-based policy in China, delegates the discretion of giving preferential treatment to some local firms to local officials, which we characterize as the discretion of local officials. Based on this policy, this study identifies the causal effect of the discretion of local officials on corporate philanthropy by using firm-level data during 2014–2019. We find that demonstration zones reform promotes corporate philanthropy, and this effect is particularly pronounced in firms with non-state ownership, firms without political connections, firms with high financial constraints, and firms with heavy pollution. Further, we find that demonstration zones reform increases visibility, reputation, and access to resources by promoting corporate philanthropy. In addition, demonstration zones reform can improve the production efficiency of firms, especially for firms with high corporate philanthropy.