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

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 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. Additional analyses suggest that pilot firms enjoy higher labor productivity and better stock performance after reducing their CSR activities, but emit more pollution afterward. Our results suggest that market liberalization induces local firms to curtail their CSR activities, benefiting shareholders at the expense of the environment.

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

JEL Classification: F65, G32, M14, O44