Do Political Ties Cause Over-Investment in Corporate Social Responsibility? Empirical Evidence from Chinese Private Firms

Chan Xiong,Ke Zhang,Xiaoping Zhao

doi:10.3390/su12177203

Abstract

One of the most significant trends of firms in recent years is the investment growth in Corporate Social Responsibility (CSR) in China. CSR investment helps firms to create business value and develop strategic resources, whereas many firms ignore its optimal level. Extraordinary enthusiasm for CSR possibly leads to over-investment in CSR, which increases firms’ cost and has a negative influence on financial performance. We tried to explore the reasons why Chinese firms are so enthusiastic about CSR investment. Drawing upon the social exchange theories, we tested the relationship between political ties and over-investment in CSR, and examined how this relationship is moderated by the degree of resource competition. Based on a sample of 2304 private firms in China, we found that political ties have a positive effect on CSR over-investment. Our findings also suggested that the degree of resource competition positively moderates the relationship between political ties and over-investment in CSR.

Highlights

In recent years, firms in transitional economies have shown increasing interest in demonstrating their corporate social responsibility (CSR) [1,2,3]
We examined a sample of private firms in China and found that private firms with political ties are more likely to over-invest in CSR than firms without political ties
We found that political ties are linked with the probability that firms will over-invest in CSR

Summary

Introduction

Firms in transitional economies have shown increasing interest in demonstrating their corporate social responsibility (CSR) [1,2,3]. Once CSR investment exceeds an optimal level, CSR cannot create sufficient benefit to cover financial costs and missed opportunity costs of firms [8,13]), or even is associated with a high crash risk in firms from the Asia-Pacific region [13] These previous studies explored the consequences of CSR over-investment; they paid little attention to explaining why firms make excessive investments in CSR. A lot of previous studies have explored the antecedents of CSR, including individual-level factors (e.g., supervisor commitment to CSR and employee psychological needs), organizational-level factors (e.g., seeking legitimacy and firm mission), and institutional-level factors (e.g., stakeholder influence and economic conditions) [15] In this regard, previous studies have largely advanced our understanding of why firms engage in socially responsible (or irresponsible) practices. Our results provided guidance for firms’ decision-making in CSR investment

Literature Review

Political Ties and Private Firms’ Over-Investment in CSR

The Moderating Effect of Regional Competition for Governmental Resources

Data and Sample

Measures

Results