Determinants and economic consequences of corporate social responsibility in China

To achieve economic, social and environmental objectives, the Chinese government has directed Chinese firms to acquire strategic assets and expand business abroad through its “Go Global” policy. As a result, Chinese firms have become the world’s largest foreign investors since 2016. In the first paper, I examine the relationship between the cross-border acquisition activities and corporate social responsibility (CSR) performance of Chinese firms. I find that Chinese acquirers significantly improve CSR performance following their cross-border acquisitions, suggesting that Chinese acquirers initiate efforts to improve CSR performance to gain legitimacy in host countries. I also find that host country legal origins, social norms, and the exposure of the acquirers to multiple jurisdictions hold the keys to improve the CSR performance of acquirers. In addition, CSR performance of non-State-Owned Enterprises (non-SOEs) are positively affected by cross-border acquisitions, especially that of non-SOEs in heavy-pollution industries. The study provides micro-level evidence on the effect of the government’s “Go Out” policy on the CSR practices of Chinese firms. It also explores the implication of corporate acquisition activities on stakeholder welfare. In the second paper, I examine whether firms use CSR activities to signal information about their future prospects to investors and other stakeholders using the pilot program of short selling and margin trading introduced by the China Securities Regulatory Commission in 2010 as a quasi-natural experiment. This pilot program imposes non-fundamentally driven pressure on the stock prices of the pilot firms. I find that the pilot firms enhance their CSR performance to respond to the exogenous shock of the sudden removal of the short-selling and margin-trading bans. When the effect of short selling on CSR is disentangled from the effect of margin trading on CSR performance, I find that the pilot firms respond to the exogenous shock of short-selling pressure by enhancing their CSR performance but not to the exogenous shock of margin trading. The results suggest that CSR activities can send a positive signal about future prospects to investors and other stakeholders including short sellers. In the third paper, I examine the effect of mandatory CSR disclosure on financial constraints using a quasi-natural experiment in China that mandates a subset of listed firms to disclose their CSR activities. Using a difference-in-differences research design, I find that firms with mandatory CSR reporting experience an increase in financial constraints after the mandate. Additional analyses reveal that the increase in financial constraints is more pronounced for firms without political connections and firms with better CSR performance. The results suggest that CSR practices that can be valuable for seeking political connections in emerging economies come at the cost of shareholder wealth, with increasing agency problems and financial constraints.