Abstract
This study investigates the relationship between sub-national institutional contingencies and corporate social responsibility performance (CSRP). Sub-national institutional contingencies (SNICs) play a moderating role in the link between CSRP and corporate financial performance (CFP). Using data from all A-share Chinese companies listed on the Shenzhen and Shanghai exchanges for the period 2010 to 2015, ordinary least square (OLS) regression was used as a baseline methodology to draw inferences from the data. The study uses propensity score matching (PSM) to confirm the robustness and to tackle the possible issue of endogeneity. We find reliable evidence that SNICs have a positive and significant effect on CSRP. This positive relationship is more pronounced in cross-listed companies as compared to state-owned enterprises (SOEs) and in companies located in the more developed region. Moreover, SNICs moderate the positive relationship between CSRP and CFP. The relationship is stronger in firms that are non-SOEs, are non-cross-listed, and are from less-developed regions as compared to their counterparts. The findings provide implications for regulators and individual companies. Investment in corporate social responsibility (CSR) helps companies to achieve their primary objective (i.e., financial performance). With respect to practical implications, the study indicates that policymakers, executives, and managers should refrain from “one size fits all” CSR policies. Instead, they need to simultaneously evaluate the effects of regional development, cross-listing, and ownership characteristics. Considering weak social performance by firms that are from less developed regions, are non-cross-listed, and that are non-SOEs, policymakers and the government should improve information transparency and the regulatory framework, and provide these firms with incentives. This study also provides insights for other emerging economies, especially those going through extraordinary government interventions.
Highlights
Corporate social responsibility (CSR) is gaining vital importance in today’s dynamic business world
Institutions play an imperative role in CSR; institutional theory suggests that companies prejudiced by pressure in their environment for conformity, compliance, and constraining organizational actions applied through their referent spectators
The study endeavors to contribute by providing insights on the role of Sub-national institutional contingencies (SNICs) in corporate social responsibility performance (CSRP) and the relationship between CSRP and corporate financial performance (CFP)
Summary
Corporate social responsibility (CSR) is gaining vital importance in today’s dynamic business world. We selected China as a focal region because it offers a diverse ownership structure [37], it has a number of subnational regions [38], and because some Chinese firms chose to cross-list in Hong Kong by issue share (H-share) [39] Such variations enable us to explore how formal and informal institutional contexts affect corporate social responsibility performance (CSRP). These formal and informal instructional contexts are considered sub-national institutional contingencies [40]. Our study suggests that sub-national institutional differences are most significant in constraining and facilitating strategic choices (CSR policies/activities) in the largest emerging economies. We contribute to the emerging literature by demonstrating the CSR effect on a firm’s financial performance by focusing on its sub-national institutional contingencies. We consider unique Chinese institutional factors for investigating this study, because institutional factors play a significant role in corporate strategic options in emerging economies; in addition, the most promising corporate governance research focuses on understanding institutional factors [41]
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