The effects of local political turnover on corporate donations in China

Abstract

Prior research mainly takes a negative attitude towards political turnover, as its uncertainty serves as a threat to firm (Henisz and Delios, 2004; Siegel, 2007; Julio and Yook, 2012; Piotroski and Zhang, 2014; Colak, Durnev, and Qian, 2016). In this study, I posit that political turnover should also be considered as a unique chance for firm (Henisz and Zelner, 2003) to start a new political relationship for political benefits, by engaging in specific corporate political activities. At this critical point, corporate donation serves as a specific political strategy to rebuild a political relationship. In the context of China, government has a dominant control over local firms. Given the increasing power of new government as new provincial leader settles down and tends to be embedded in local political ecosystem, local firms tend to donate more to build a new and consistent political relationship. Thus, I posit that the tenure of new provincial leader is positively related to corporate donation. I then explore how this relationship is moderated by institution-, industry-, and firm-level factors of government intervention, industry competition, firms’ political connection and CEOs’ party membership. With a large panel data set including the listed firms in Chinese stock market from 2009 to 2016, I find that the positive effect of the new provincial leader’ tenure on corporate donation is weakened by a lower level of government intervention, fierce industry competition, firm’s political connection and CEOs’ party membership. Moreover, my research adds to the corporate political activities (CPA) literature, the government-firm interactions and exchanges, and a fusion of understanding on the relationship between CPA and corporate social responsibility (CSR).