In the name of charity: Political connections and strategic corporate social responsibility in a transition economy

What is it about?

This study investigates whether firms in China use corporate social responsibility (CSR) to build political networks and, if so, how such CSR decisions affect firm performance. We examine how abrupt termination of existing political connections caused by replacement of city mayors affect Chinese listed companies' CSR choices. We find that when a mayor is replaced, the level of and the propensity for CSR activity increase. In addition, we find that firms that spend resources to bond with a new government via CSR activities are rewarded: these firms receive higher levels of government subsidies or have a greater propensity to receive future government subsidies. These firms also outperform firms that do not invest in political networking via CSR.

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Why is it important?

Using an exogenous shock to listed companies' decisions, our study adds direct evidence to how and through what channel CSR affects firm performance. We also contribute to the CSR literature on politically motivated CSR strategies.