Red tape reform, transaction costs, and corporate social performance: A natural quasi-experiment in China

Abstract

The question of how government red tape affects corporate social performance (CSP) has received little attention. Based on the transaction cost and institutional theories, we hypothesize a theoretical link between external red tape and CSP. We employ a natural quasi-experiment based on the gradual rollout in some cities of administrative licensing centers, which aimed to reduce red tape and link these with firm-level charitable donation data from 1998 to 2016. Results show that red tape reform improved CSP by reducing corporate efficiency-based transaction costs and that this facilitating effect is heterogeneous in terms of red tape reform characteristics. Our study advances external red tape research by confirming the positive role of red tape reform in fostering socially conscious stakeholder behavior.