The Interdependence of Public and Private Stakeholder Influence: A Study of Political Patronage and Corporate Philanthropy in China

Abstract

We argue that the influence of public stakeholders (the state) and private stakeholders (non-state social or economic stakeholders) on corporate philanthropy is interdependent, in that satisfying the state may increase the degree of scrutiny and pressure exerted by private stakeholders on the firm, particularly in institutional environments that place few checks and balances on the power of the state-thus creating suspicion that political patronage shelters firms' social and moral wrongdoing. To test this theory, we examine the circumstances under which politically patronized firms engage more (or less) in corporate philanthropy. Utilizing a dataset that encompasses both publically traded and unlisted private firms in China, we find that corporate philanthropy is negatively associated with political patronage among unlisted firms but positively associated with political patronage among listed firms. These results are consistent with the predictions made based on our theoretical arguments. This paper aims to foster further discussion regarding the interdependence of the influences exerted by different stakeholders on firms.

Keywords: corporate philanthropy, corporate social responsibility (CSR), stakeholder theory, interdependence, political patronage, political connection, China