Being Nice to Stakeholders: The Effect of Economic Policy Uncertainty on Corporate Social Responsibility

60 Pages Posted: 23 Jan 2018 Last revised: 15 Feb 2020

See all articles by Jian Zhang

Jian Zhang

Shanghai International Studies University

Dongmin Kong

Zhongnan University of Economics and Law

Ni Qin

Huazhong University of Science and Technology (Formerly Tongi Medical University)

Ji (George) Wu

Massey University - School of Economics and Finance

Date Written: November 10, 2018

Abstract

This study examines the reaction of firms to economic policy uncertainty (EPU) by investing in corporate social responsibility (CSR). Using a Chinese sample, we find a positive and significant relationship between EPU and the CSR engagement of firms. Firms tend to send a signal to their stakeholders to convey that they honor implicit contracts by investing in CSR activities during high uncertainty periods. The results support the risk management perspective that firms adopt CSR as an ex-ante insurance mechanism. Our findings are more significant in firms in low social trust regions and firms connected to arrested corrupt officials. Results are robust to a variety of model specifications and endogeneity problems.

Keywords: economic policy uncertainty, corporate social responsibility, investment

Suggested Citation

Zhang, Jian and Kong, Dongmin and Qin, Ni and Wu, Ji (George), Being Nice to Stakeholders: The Effect of Economic Policy Uncertainty on Corporate Social Responsibility (November 10, 2018). Available at SSRN: https://ssrn.com/abstract=3107756 or http://dx.doi.org/10.2139/ssrn.3107756

Jian Zhang (Contact Author)

Shanghai International Studies University ( email )

550 Dalian Road (West)
Shanghai, Shanghai 200083
China

Dongmin Kong

Zhongnan University of Economics and Law ( email )

No.143, Wuluo Road
Wuhan, Hubei 430073
China

Ni Qin

Huazhong University of Science and Technology (Formerly Tongi Medical University) ( email )

1037 Luoyu Rd
Wuhan, Hubei 430074
China

Ji (George) Wu

Massey University - School of Economics and Finance ( email )

Private Bag 102904
North Shore
Auckland, Auckland 0745
New Zealand
+6292127089 (Phone)

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