Abstract
This study aims to enrich our understanding of the relationship between political connections and the adoption of environmental corporate socially responsible (ECSR) investments. In addition to the individual-level political connections, i.e., entrepreneurs’ personal ties to government officials, we propose in China the creation of Communist Party of China (CPC) branches in privately owned firms serve as organizational and institutionalized dimensions of political connection building. Drawing on the social exchange theory, this paper details how CPC branches function in privately owned firms and how entrepreneurs are motivated by the reciprocal logic to engage in ECSR. We also supplement this main effect by examining the boundary conditions of it at the firm and regional level. Using a dataset with 17,690 firm observations in China, we find that the existence of CPC branches gives rise to the ECSR investments and the firm-level contingencies such as centralized governance and financial constraints, and the regional-level contingencies such as the development of the market system, are important moderators that shape the association of political links and ECSR investments. These findings have ample implications to understand the ECSR activities and extend social exchange theory beyond the individual level on which it is typically applied.
Highlights
Political connections play an important role in corporate social responsibility (CSR) of a firm (Cumming et al 2016; Muttakin et al 2018; Li et al 2015; Lin et al 2015)
We find that the existence of Communist Party of China (CPC) branches gives rise to the environmental corporate socially responsible (ECSR) investments and the firm-level contingencies such as centralized governance and financial constraints, and the regional-level contingencies such as the development of the market system, are important moderators that shape the association of political links and ECSR investments
We subsequently test whether the relationship between Party branch (PB) and ECSR is affected by the central governance in private firms
Summary
Political connections play an important role in corporate social responsibility (CSR) of a firm (Cumming et al 2016; Muttakin et al 2018; Li et al 2015; Lin et al 2015). Present studies have focussed on the role of individual-level political connections (i.e., political ties between entrepreneurs and government officials) and presented contradictory predictions. We have a limited understanding of the link between political connections at the organizational level and CSR. We draw on a recently introduced initiative launched by the Central Committee of Communist Party of China (CPC) that encourages the creation of a CPC branch in privately-owned firms, which may transform individual-level political connections to the organizational-level in privately-owned firms. Our setting is interesting since government relationships and political connections are of significance for privatelyowned firms in emerging economies such as China (Arnoldi and Muratova 2018; Faccio et al 2006; Peng and Luo 2000). A policy from the Central Committee of CPC encouraging the creation of in-house CPC branches offers the opportunity to examine how organizationallevel political connections matter to CSR investments
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