Do the resignations of politically connected independent directors affect corporate social responsibility? Evidence from China

Qian Li and Mengting Guo

Journal of Corporate Finance, 2022, vol. 73, issue C

Abstract: This paper explores how forced resignations of politically connected independent directors (political IDs for short) affect the performance of corporate social responsibility (CSR). Using a Communist Party of China regulation that forbids political officials from sitting on boards as an exogenous shock, this paper finds that the forced resignations of political IDs are associated with a decrease in firms' CSR performance. We further find that such reductions are not attributable to decreases in capital and knowledge resources. However, the negative association between political IDs' forced resignations and CSR performance is more prominent for firms under more political pressure, such as when political IDs are high-ranking incumbents, when firms located in the province with a high level of government intervention, or in polluting industries, and when firms have no government shareholdings. Therefore, we conclude that the reduction in CSR performance is due to the release of political pressure after the resignations of political IDs. Our results are robust to alternative CSR measures, varied sample periods, and sample selection bias correcting. The results of placebo tests also confirm our findings. Our study shows that political pressure imposed by politicians on firms is an important determinant of CSR.

Keywords: Politically connected independent directors; Political connection disruptions; CSR; China (search for similar items in EconPapers)
JEL-codes: G32 G38 M14 M41 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:73:y:2022:i:c:s0929119922000177

DOI: 10.1016/j.jcorpfin.2022.102174

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