Political uncertainty and Corporate Philanthropy: Evidence from China

Abstract

This study investigated the relationship between political uncertainty and corporate philanthropy in emerging markets, using China as the research setting. The growth of companies in China depends largely on various national policies which are also the main drivers on Chinese economic development. Those polices are actually executed by local leaders with a certain degree of autonomy. Each leader has a personal style of policy implementation in his/her jurisdictions. Once the local leader shifts, enterprises in the region may face the risk of policy implementation changes. Leadership transitions in Chinese cities were chosen to represent political uncertainty. After a change in local government leadership, more philanthropic activities and higher charitable spending were identified for listed companies in the region. The trend was exceptionally prominent for companies with higher regulatory risks. In that regard, companies in the private sector or owned by the local government, from pollution-intensive industries, or with a considerable size were riskier. In addition, the study identified the potential of charitable giving in lessening administrative punishments for the donating companies. The research expanded the literature on political uncertainty and corporate philanthropy by illustrating the effectiveness of the former as a response to the latter.