Stock Market Liberalization and Corporate Social Responsibility: Evidence From a Quasi-Natural Experiment in China

Posted: 20 Jan 2021

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Dequan Jiang

Wuhan University

Weiping Li

International School of Business & Finance

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Zi-Tian Wang

The University of Queensland

Date Written: December 1, 2020

Abstract

Exploiting a quasi-natural experiment in China in which some firms become investible to the global market across different periods (i.e., pilot firms), we evaluate the role that stock market liberalization plays in shaping local firms’ incentives to invest in corporate social responsibility (CSR) activities. In a staggered difference-in-differences research design, we find that pilot firms significantly reduce their CSR investments from the pre-liberalization period to the post-liberalization period, relative to non-pilot firms that remain under strict capital controls during the same timeframe. This result is concentrated among firms that suffer worse agency problems. Additional empirical analyses suggest that pilot firms enjoy higher labor productivity and better stock performance after reducing their CSR activities in the post-liberalization period; however, a major negative externality is that they emit more pollution afterward. Collectively, our results suggest that market liberalization induces local firms to curtail their CSR activities, benefiting shareholders at the expense of the environment. Our findings provide new insights into the importance of stock market liberalization for firms’ CSR activities, market values, labor productivities, and environmental effects.

Keywords: stock market liberalization; corporate social responsibility (CSR); firm value; labor productivity; environmental effects

JEL Classification: F65, G32, M14, O44

Suggested Citation

Chemmanur, Thomas J. and Jiang, Dequan and Li, Weiping and Pittman, Jeffrey A. and Wang, Zi-Tian, Stock Market Liberalization and Corporate Social Responsibility: Evidence From a Quasi-Natural Experiment in China (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3740396

Thomas J. Chemmanur (Contact Author)

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Dequan Jiang

Wuhan University ( email )

Wuhan
China

Weiping Li

International School of Business & Finance ( email )

Guangzhou
China

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Zi-Tian Wang

The University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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