Effects of political promotion on local firms’ social responsibility in China

Abstract

In China, public officials control enormous resources and their political incentives substantially shape certain firm behaviors. As corporate social responsibility (CSR) activities are one of the important measures that the central government uses to evaluate the performance of local government, firms may strategically implement CSR to build a good relationship with local governments. In this paper, we investigate the effects of political incentives on firms’ CSR performance using a panel of Chinese publicly listed firms for the period 2009–2013. We find political incentives significantly improve firms’ CSR. Moreover, this relationship is particularly pronounced among firms with (i) low proportions of state ownership; (ii) close political connections; and (iii) relatively high financial constraints. We also find that firms that strategically apply CSR to accommodate the local government’s political incentives obtain more tax/subsidy benefits. Overall, this study improves our understanding of the political determinants of CSR in emerging markets.