Political connections and corporate social responsibility: Political incentives in China

• Author: Shan Xu,Duchi Liu
• Date: 01 October 2020
• Published date: 01 October 2020
• DOI: http://doi.org/10.1111/beer.12308

664  

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  wileyonlinelibrary.com/journal/beer Business Ethics: A Eur Rev. 2020;29:664–693.© 2020 John Wiley & Sons Ltd

Received: 9 Febr uary 2019 

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  Revised: 18 June 202 0 

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  Accepted: 25 June 20 20

DOI: 10.1111/beer.12308

ORIGINAL ARTICLE

Political connections and corporate social responsibility:

Political incentives in China

Shan Xu1 | Duchi Liu2

1School of Busi ness Administrat ion, South China U niversity of Technolo gy, Guangzhou, Chi na

2Linnan Colle ge, Sun Yat-Sen University, Gua ngzhou, China

Correspondence

Shan Xu, Shanto u Alumni Building , School

of Business Adm inistration, S outh China

Universit y of Technology, 381 Wushan Rd.,

Tianhe District, Guangzhou, Guangdong

510641, China.

Email: bmshanxu@scut.edu.cn

Funding information

The authors wis h to acknowledge

the valuable sup port provided by the

National Natur al Science Foundatio n of China

(71602061) and Soft Scie nce Research

Program of Guang dong Province

(2019A101002094) and Philoso phy and

Social Scienc es Program of Guangzho u

(2020GZGJ12).

Abstract

To explore the motivations underpinning corporate social responsibility (CSR) deci-

sions in China, a country characterized by extensive government intervention, t his

paper investigates whether building a good relationship with the government is a

political incentive that is driving firms to conduct CSR by examining the effects of

political connections on the latter. Our re sults i ndicate t hat polit ically co nnected

firms exhibit better C SR. However, the effect is considerably more significant for

firms with exist ing political relationships. Additionally, findings show that the effect

is more prominent in firms fo r which political connections are mor e valuable, namely,

non-state-owned enter prises, small firms, and firms operating in less market-oriented

cities, indic ating that CSR ca n serve as a dif ferentiation strategy to compete against

other bidders. Dividing CSR activities into economic, environmental and social as-

pects, we find that the social-based acti vities are more likely to be driven by political

motivations. By categorizing CSR and political connections, t his paper not only e x-

pands t he scope of political C SR and rend ers the gen erated results that have be en

mixed togeth er more distin guishable, but also provides a more precise understand-

ing of the fundamental drivers of CSR in China from t he perspe ctive of resource

exchange.

JEL CLASSIFICATION

G34; L2; M14

1 | INTRODUCTION

Corporate social responsibility (CSR) is a widespread trend across

mainstream businesses, such as those in the financial and mar ket-

ing sectors, as well as academic arenas, because of the common de-

sire to p romote a more sustainable and better wo rld (Zhang, Oo, &

Lim, 2019). Given the resources d evoted to C SR, it is importa nt to

understand the motivations underlying this concept. Early scholarly

work has suggested a number of personal-, firm- and institutiona l-

level determinants of CSR, including psychological factors related to

chief exe cutive office rs (CEOs), st akeholder att ribution, re putation

effects , enterpris es’ features , governance structure s, and financial

performan ce (Hu, Lin, & H su, 2018; J ha & Cox , 2015; Kim , Kim, &

Qian, 2018; Mohammad & Hus ted, 2019; Neri, Pinnington, Lahr ech,

& Al-Malkawi, 2019; Oh, Chang, & Jung, 2018). However, despite the

substantial scholarly at tention paid in recent years to CSR in Nor th

America and Western Europe, informat ion ha s bee n limit ed wit h

respect to CS R perceptions an d practices in emerging countr ies (Li,

Khalili, & Cheng , 2019), resu lting in the Wester n-centric nat ure of

CSR academ ic publications (Yi n & Zhang, 2012).

Pan, Chen, and Ning (2018) echoed the concern that theories

developed against the Western background might have limited

    

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XU and LIU

utility when applied to observing what constitutes CSR and how

organizations act responsibly elsewhere because the practice of

stakeholder engagement relies on specific institutional elements.

Moreover, the various combinations of state reg ulations, indus-

trial norms, civil organizations, financial markets, human capital,

social capital, and corporate governance institut ions ca n result

in different types of CSR sense-making and strategic choices

(Gao, 2011; Jamali , Jain, Samara, & Zoghbi, 2020). Chi na is the

most rapidly devel oping countr y worldwide. It has vastly differ-

ent social, cultural, politi cal, and economic structures and dis-

tinctive roles of gove rnment c ompared w ith the West. Thus, it

is a good samp le for b roadening th e cumulative CSR mot ivation

knowledge base.

In contrast to developed countries, China has a distinct feature

that the government directly intervenes in the economic system and

plays a critical role in the economy. Relationships between the govern-

ment and enterprises are subtler and more complicated in China than

in other countries. The liberal concept of CSR-a voluntary practice-re-

flects the institutional makeup of the USA and the UK, where CSR

originated. However, as Graafland and Zhang (2014) noted, CSR for-

mulation and implementation in China differ from those of its Western

progenitors; the awareness of CSR is relatively weak and encompasses

more than simply ‘pure voluntary action’. The state always engages

with businesses for integrating long-term national interests in policy

making, so the government could be a key factor in the CSR of compa-

nies (Jamali et al., 2020). However, the role of the government in CSR

has not been carefully verified in previous studies of Western coun-

tries. Additionally, considering the institutional heterogeneity among

developing countries, it is necessary to examine whether and how the

government intervenes in CSR under the specific institutional and cul-

tural background of China.

The resource dependence theory (RDT) associated with the

work of Pfe ffer and Salanci k (1978) indicates that or ganizations de-

pend on resources from their environment. External stakeholders

appear powerful to firms b ecause they can cons train firms ’ access

to critical reso urces and subsequently affe ct firms’ survival and s uc-

cess (Hillman, Withers, & Collins, 2009; Shirodka r, Beddewe la, &

Richter, 2018). In China, t he government , as the mar ket regulator,

is responsible f or the allocation of key and sc arce resources that are

vital to firms ’ development. Thus, it i s a key stakeholder that af fects

the survival and development of firms (Cull, Li , Sun, & Xu, 2015;

Gwartney & Lawson, 2009; Li, Meng, Wang, & Zhou, 2008). In such

an economic environment, Chinese firms would prefer to build

and maintain co nnections with the government to red uce the un-

certaint y caused by resour ce constraint s and advance the ir devel-

opment. As a sp ecial form of business–governmen t relationship,

political connections are an important means of government inter-

vention in firms. Concurrently, political connections are an import-

ant channel for Chinese fi rms to access govern ment protection and

valuable reso urces, such as lower taxatio n, privileged access to debt

financing from government-controlled banks and relaxed govern-

ment overs ight (Claessens, Feijen, & L aeven, 2008 ; Wu, Wu, Zh ou,

& Wu, 2012).

However, the e ssence of the enterprise is a profit-making o rga-

nization, while public ownership1 is the basic system with which the

Chinese government develops the economy. Moreover, although it

is a long-term and arduous task, th e sustainable development of the

society, economy, and environment h as become a new goal of the

Chinese government in recent years (Gao, 2009). The heterogeneity

of goals between the Chinese government and enterprises leads to a

lack of sufficient comm on values and trust (Zhou, Li, & Zhang, 2019).

To gain trust and maintain p olitical conn ections, bas ed on th e rec-

iprocity and fair ness princip le of soc ial exchange, firms at tempt to

meet government expectations, such as shouldering social responsi-

bility (F lammer, 2018). Additio nally, this typ e of exchange is poten-

tially mandatory. A s proposed by Bla u (1964) and Emerson (1976),

social exchan ge is an action th at occurs when pe ople make recipro-

cating responses; it s tops when they no longer do so. Once people's

social statuses are divided, it should be maintained by power rather

than exchange. The Chinese government has an absolute power ad-

vantage in the business–government relationship. Enterprises will

potentially be required to un dertake certain CSR in exchan ge for

trust and resources; otherwise, the government has the p ower to

prevent the m from acquiri ng what they w ant. Thus, c atering to the

government to compete for political resources could be an im port-

ant fac tor that in duces Chi nese fir ms to assume social res ponsibi lity.

Therefore, o n the basis of exp loring and identif ying CSR dimen-

sions against the backdrop of China (Xu & Yang, 2010), this pap er

further integr ates the RDT and social exchange theory (SET) into the

lit eratu re on po liti cal CS R (Shir odka r et al. , 2018) . Unlik e previ ous re -

search, whi ch only tested t he political mot ivations of CSR a ctivities

from a sing le perspective (Gao & Hafsi, 2017; Hua ng & Zhao, 2016;

Lin, Tan, Zhao, & Kar im, 2015), this research at tempts to investigate

the r ole of the governme nt in d riving CS R activiti es from multiple

perspect ives by answering two questions: (1) W hat is the impac t of

political connections on CSR p erformance in China? (2) A re the ef-

fects likely to be different depending on the level of dependence on

the government for l egitimacy and acquisit ion of resources?

This re search aims to contribute to and fill several gaps in pre-

vious liter ature at the foll owing main levels. First, it exp ands earlier

research on the motivations beh ind the CSR stra tegy of companies.

The motivations of companies’ per formance of CSR are compli-

cated, including inter nal motivations such as altruistic, profit maxi-

mization, moral, reputation, and religio n (Aguile ra, Rupp, Williams,

& Ganapathi, 2007; Gallego-Alvarez, Rodriguez-Dominguez, &

Vallejo, 2020; Hu et al., 2018; Ki m et al., 2018; Oh et al., 2018; Tang,

Mack, & Chen, 2018) and external pressures like stakeholder-driven

and politi cal and insti tutional power m otives (Borghesi, Houston, &

Naranjo, 2014; Lin, Tan, & Geng, 2013; Moh ammad & Husted, 2019;

Vuković, Mile tić, Čurčić, & Ničić, 2020 ). However, the t wo are sep-

arate and most of t hem represent Western persp ectives. Base d on

the RDT and the SET, this pap er not only treats the influence of

political connections as the combination of internal utilitarian and

external polit ical pressure from a non-Western per spective, but also

proves that what is diff erent from the West is that the motivati on of

CSR in China is not ‘p urely voluntary’.