Economic policy uncertainty and corporate social responsibility performance: evidence from China

Abstract

Purpose The purpose of this paper is to show how the external issue of economic policy uncertainty (EPU) affects enterprises’ corporate social responsibility (CSR). Design/methodology/approach This study investigates the relationship between EPU and CSR based on the Chinese capital market from 2010 to 2018. Following the most recent studies focused on economic policy uncertainty, this paper uses the news-based method proposed by Baker et al. (2016) to measure EPU and explore the effect of EPU on CSR, as well as the mediating role of state ownership in such a relationship. Findings Empirical results show that increasing EPU will restrain enterprises’ social responsibility behaviour and the inhibitory effect is more obvious for state-owned enterprises. Further analyses reveal that the inhibitory effect of EPU on CSR is stronger for enterprises that face severe financial constraints and is significant for various components of CSR, and trade policy uncertainty could also curb enterprises’ social responsibility behaviour. Practical implications As a stable economic environment is important for enterprises’ CSR engagement, the present study’s conclusions can help policymakers better understand the implications of policy stability for enterprises’ financial and non-financial decisions and especially their CSR decisions. Social implications With the increasing attention paid to the CSR of enterprises, this study provides evidence that enterprises should develop appropriate CSR strategies according to the economic policy environment and enhance their capacity to withstand the risks generated by EPU. Originality/value To the best of the author’s knowledge, this study is the first to analyse the relationship between EPU and CSR. The results contribute to a better understanding of what issues influence enterprises’ CSR engagement, highlighting the importance of a stable economic policy environment and of enterprises’ ability to withstand risks.

Economic policy uncertainty and firm propensity to invest in corporate social responsibility

“…On the other hand, using data from Chinese firms, Zhao et al. (2021) find that high policy uncertainty diminishes CSR activities, particularly in firms where the government holds significantly large ownership stakes.…”

“…Although the literature on the EPU–CSR nexus is at the infancy stage, the existing evidence are inconclusive (e.g. Vural-Yavaş, 2020; Zhao et al. , 2021).…”

“…First, the literature on the CSR–EPU relationship (e.g. Vural-Yavaş, 2020; Zhao et al. , 2021) is still at the early stage, and the existing findings are inconclusive.…”

How Does Transportation Infrastructure Improve Corporate Social Responsibility? Evidence from High-Speed Railway Openings in China

“…CRH is a control variable to control differences between companies that experienced high-speed railway openings in the full sample period and those that did not. Following Zhang et al and Adhikari [8,9], firm size, return on asset, cash holding ratio, leverage, and effective tax rate are used to control the availability of economic resources at the firm level; market-to-book value, R&D intensity, and firm age control the different life cycles of public companies since firms in different life cycles may choose diversified CSR strategies [19]; the equity nature of the firm's ultimate controller is used to control the SOE effect since the State-owned Assets Supervision and Administration Commission (SASAC) will provide favorable evaluation scores for stated-owned enterprises taking more social responsibility [42]; institutional investor shareholding ratio is used to control the corporate governance quality [43]; and the annual GDP in the company's location region is chosen to control differences in regional economic development. Year and Ind are year dummy and industry dummy, respectively, and ε is the residual term.…”

“…Therefore, holding other things equal, by alleviating or aggravating information asymmetry, changes in companies' external information environment will lead to better or worse CSR performance, depended on the initial motivation for firms' CSR activities. In finding such factors affecting CSR performance through changing enterprises' information environment, while recent studies emphasize the role of the country-level economic policy uncertainty [18,19], significant regional economic changes, especially transportation infrastructure investment, can also have impacts because such construction effectively decreases field investigation difficulties, accelerates information exchanges, and thus improves the firm-level information environment. From the perspective of high-speed railway openings, this study narrows the research gap between the regional economic factors and listed companies' CSR performance.…”