Managerial Ownership and Corporate Social Performance: Evidence from Privately Owned Chinese Firms' Response to the Sichuan Earthquake

Abstract

ABSTRACTThis study seeks to understand the underlying relationship between managerial ownership and corporate social performance in privately owned Chinese firms. Agency theory predicts that corporate expenditure on social practices is merely a managerial expropriation in an ordinary business setting. However, the business context of natural disasters in China has been characterized by stakeholder pressure on corporate responsibility. We propose that in our context of study, corporate social performance constitutes an investment and managers who own significant parts of the company are more likely to promote corporate philanthropic actions. Using a hand‐collected database that includes firm‐level data on corporate contributions after the Sichuan Earthquake on 12 May 2008, we find that higher managerial ownership is associated with a significantly higher probability of donation and charity. Furthermore, we find that corporate board size and political ties with the government moderate this relationship. Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment.