What Explains Corporate Social Responsibility Engagement in Chinese Firms?

Abstract

This study examines factors that explain corporate social responsibility (CSR) engagement in Chinese firms. Contrary to the developed markets, the Chinese government plays a determinant role in CSR engagement of Chinese firms. For the state-owned firms, several results are noted. First, a firm’s CSR engagement appears to serve the government interest rather than the various stakeholders. Second, managers will overinvest in CSR for political reasons or private reputation building. The behavior supports the overinvestment hypothesis. Third, a state-owned enterprises firm with more earnings management will likely reduce CSR engagement. SOEs that have CSR engagements tend to have higher research and technical development expenditures and lower financial performance. For non-state-owned firms, the CSR engagements appear to mitigate conflicts among stakeholders and associate with higher firms’ value, supporting the conflict-resolution hypothesis. Our results find that firms of a larger size are more likely to participate in more CSR engagement for both SOEs and non-SOEs.