Government-initiated corporate social responsibility and performance growth—Evidence from enterprise engagement in targeted poverty alleviation in China

Abstract

In China, corporate social responsibility practices are still regulated by the government. If enterprises face a crowding-out effect on their performance while fulfilling their social responsibilities, it becomes untenable for market forces to solve public problems. To verify the viability of the Chinese model of “government-initiated enterprise participation,” we use a multivariate regression model in this paper to examine the impact of government-initiated corporate social responsibility on the growth of corporate financial performance, based on the evidence of enterprise participation in targeted poverty alleviation. We find that enterprise participation in targeted poverty alleviation initiatives has a positive influence on credit constraints and the enterprise's reputation. It manifests itself as an increase in the long-term debt ratio, and a decrease in the cost of debt, and attracts the positive attention of the media and investors for the enterprises, through which it promotes performance growth. In addition, the effect on performance growth is more pronounced in enterprises that are privately owned, are involved in industrial poverty alleviation, and have won awards for it. This paper supports the argument that government-initiated corporate social responsibility increases the enterprise's value and provides sufficient evidence for formulating policies aimed at incentivizing market forces to solve social problems.