Financial market regulation and corporate social responsibility: Evidence from China’s new asset management regulation

Abstract

This study explores how the financial market environment reshapes corporate social responsibility using a quasi-natural experiment provided by China’s New Asset Management Regulation. Our research focuses on the adaptive strategies of nonfinancial firms in response to stringent financial market regulation, and we use a generalized DID model to identify the causal link between the NAMR and CSR. The findings reveal a decline in non-financial firms’ CSR performance following the more stringent financial market regulation. Mechanism testing suggests that the negative impact is primarily due to the reduction in the return on financial asset investments. Furthermore, we assess the heterogeneity influences of financial regulation on the three dimensions of CSR (environment, society, and governance). Our analyses underline a significant decrease in the environment and governance CSR among non-financial firms, while no significant impact is observed on the social dimension of CSR. This study contributes to a greater understanding of the relationship between financial market regulation and CSR. It offers valuable insights for the development of effective policy guidance to ensure the optimal functioning of the real economy.