When politics meets sustainability: the effect of independent directors' political connections on corporate sustainability disclosure in China

Abstract

PurposeThis paper investigates the influence of political connections on sustainability disclosure in the context of China's Regulation 18.Design/methodology/approachThe study employs a quasi-experimental approach, utilizing difference-in-difference (DiD) analysis, dynamic DiD and propensity score matching to analyze the effects of politically connected independent directors on sustainability disclosure following the implementation of Regulation 18.FindingsCompanies with politically connected independent directors show an improvement in sustainability disclosures after Regulation 18. This effect is stronger for firms facing high political pressure or lacking alternative political power. Additionally, the increase in value from sustainability disclosures compensates for the loss of politically connected independent directors, indicating a positive value impact of sustainability disclosures.Originality/valueThis study provides novel insights into the corporate disclosure policy in China by investigating the impact of politically connected directors on sustainability disclosure. Additionally, it sheds light on the limitations of political power and its substitution effects within companies.

Guest editorial: A short review of the role of ESG activities in business and research

“…The authors additionally analyze direct and indirect associations between ESG performance and top executive compensation, contributing to the growing literature on the topic and ongoing debate related to the inclusion of ESG KPIs in the compensation system. Ting and Lee (2024) analyze the impact of politically connected independent directors on sustainability disclosure in China. Regulation 18, introduced in China in October 2013, prohibited current government officials from holding positions in business entities and discouraged retired officials from exerting political influence on behalf of connected companies.…”

“…Ting and Lee (2024) analyze the impact of politically connected independent directors on sustainability disclosure in China. Regulation 18, introduced in China in October 2013, prohibited current government officials from holding positions in business entities and discouraged retired officials from exerting political influence on behalf of connected companies.…”

“…Ting and Lee (2024) suggest several avenues for exploration. First, as the authors point out the importance of country context, examining the effectiveness and impact of regulatory interventions on sustainability disclosure in different countries would provide valuable insights.…”

“…Future research can also investigate whether explicit ESG incentives for CEOs serve to increase their own compensation or serve stakeholders' interests. Ting and Lee (2024) suggest several avenues for exploration. First, as the authors point out the importance of country context, examining the effectiveness and impact of regulatory interventions on sustainability disclosure in different countries would provide valuable insights.…”