The Impact of Internationalization on Home Country Charitable Donation: Evidence from Chinese Firms.
| Verfasser | Liu, Heng |
| Posten | RESEARCH ARTICLE - Report - Abstract |
1 Introduction
Firm internationalization is the process "through which a firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets" (Hitt et al. 2006, p. 251). Internationalization is an important strategy that firms from developing countries adopt in order to gain access to larger markets and critical resources (Ciravegna et al. 2014; Child and Rodrigues 2005; Gaur et al. 2014). Many researchers find internationalization contributes to these firms' financial capabilities and continuous growth (e.g. Graves and Shan 2014; Marano et al. 2016; Singla and George 2013). Then would they in turn make more contributions to the development of their home country, by means of donating to charitable organizations and the communities? This question regarding whether internationalization promotes or inhibits home country social performance of firms from developing countries has, unfortunately, remained poorly studied. The objective of this study is to shed light on this relationship by focusing on charitable donations made by firms from one developing country, China.
Prior research has provided some important insights in this relationship (Cheung et al. 2015; Kacperczyk 2009; Simerly and Li 2000), yet two important gaps remain in the literature. First, prior studies have mainly focused on the positive effect of internationalization on charitable donations of firms from developed countries such as the United States and United Kingdom (e.g. Brammer et al. 2009; Kang 2013). However, whether these findings still hold for firms from developing countries is largely unknown. To the extent that firms from developing and developed countries face distinctive institutional environments which have differing implications for their internationalization and charitable donation (Wright et al. 2005; Yang et al. 2009), the impact of internationalization on domestic donation could differ between firms from developing and developed nations.
Second, while scholars have recently started to examine the effect of internationalization on social performance of firms from developing countries, their findings are still inconsistent. For instance, Cheung et al. (2015) find that Chinese firms' corporate social responsibility performance is positively related to their internationalization, yet Attig et al. (2016) find such a relationship to be negative. In addition, firms' social performance is multifaceted, with different dimensions having distinctive attributes and charitable donation being only one of the dimensions (Attig et al. 2016; Carroll 1979, 1991). Thus, the extent to which existing findings can inform the relationship in question is arguably constrained.
Alternatively, this study approaches the relationship in question from the perspective of resource dependence theory (Pfeffer and Salancik 1978). We maintain that despite the positive effect of internationalization on Chinese firms' financial performance, it may negatively affect their charitable donation within home country. Specifically, we argue that the more a Chinese firm is dependent on overseas markets instead of domestic markets, the less important the domestic stakeholders are for its survival, and consequently it is less likely to make charitable donations within China. Furthermore, we study the boundary conditions of such a negative relationship. In particular, we focus on Chinese firms' state-ownership, arguing that it can provide alternative sources of critical resources for the firm's survival and therefore alleviate such a negative effect. We tested and supported our hypotheses using data collected from all companies listed in China's stock markets from 2008 to 2012.
This study contributes to the growing body of research integrating two streams of literature, namely firms' internationalization and social performance in the context of developing countries. These two streams of literature have traditionally evolved independently (e.g. Luo and Tung 2007; Wood 1991). Only recent years have seen an increasing interest in the interplay between these two research domains (e.g. Aguilera-Caracuel et al. 2015; Brammer et al. 2009; Kang 2013). Our study contributes to this area of research by being the first to study the effect of internationalization of firms from a developing country on their home country charitable donations, which is distinctive from prior research focusing on firms from developed countries. In addition, distinct from many studies in this line of research that focus on the overall social performance of firms, our study focuses on charitable donation, a specific yet critical dimension of social performance. In this aspect, this study provides a more nuanced perspective that helps to reconcile the controversy regarding the relationship between firms' internationalization and social performance in developing countries. Moreover, our study identifies an important boundary condition of the main relationship by focusing on a unique factor in the emerging-market context, i.e., firms' state-ownership, which further sheds lights on the aforementioned controversy.
2 Theoretical Background and Hypotheses Development
2.1 Corporate Charitable Donation
Charitable donation refers to voluntary or discretionary activities that are "guided only by business' desire to engage in social activities that are not mandated, nor required by law, and not generally expected of business in an ethical sense" (Carroll 1991, p. 36). It is the primary form of corporate philanthropy in China (e.g. Du 2015; Gao 2011; Kolk et al. 2010). Broadly speaking, corporate philanthropy is one key category of CSR based on the theory of Carroll's four categories of CSR (Carroll 1979, 1991). This four-part dimension of CSR has been stated as follows: "the social responsibility of business encompasses the economic, legal, ethical, and discretionary (later referred to as philanthropic) expectations that society has of organizations at a given point in time" (Carroll 1979, p. 500, 1991, p. 283). Carroll contends that economic (be profitable) and legal (obey the law) responsibilities are 'required', the ethical (be ethical) responsibilities are 'expected', and the philanthropic (be a good corporate citizen) responsibilities are 'desired' (Carroll 1991). Carroll's four category of CSR model has enjoyed wide popularities among scholars and remained a leading paradigm in the field (Frynas and Yamahaki 2016).
According to the literature review, prior studies often suggest three distinctive views on corporate philanthropy: normative motivation, cost reduction, and strategic and political view (e.g. Campbell et al. 1999; Porter and Kramer 2002; Li and Zhang 2010). First, altruistic responsibility theory (Sanchez 2000) attributes charitable donation largely to a sense of altruism and high-order calling for morality and recognizes that EMFs may show rising donation levels, to some extent, because their top management members may be influenced and social learned by the "firm-citizen" ideas of CSRs from peers in developed economies (Campbell et al. 1999). Second, cost reduction view suggests that firms donate as long as direct economic benefit can be gained, such as tax benefits enjoyed by US firms. Yet tax benefits are less likely to be a major motivator for donation in China at present, as only less than 3% of all the charity organizations in China are tax exempt (Su and He 2010). Third, the strategic and/or political view (e.g. Orlitzky et al. 2011; Porter and Kramer 2002) argues that donations are used as a strategic purpose to avoid disturbing stakeholder interests and enhance stakeholder support, or as a publicity strategy for attracting strategic resources from outside stakeholders and for good reputation-building.
Notably, researchers find that corporate charitable donations in China are more explained by strategic or political considerations than other causes (Jia and Zhang 2013; Li and Zhang 2010; Zhang et al. 2010a, b). For instance, Zhang et al. (2010a, b) suggest that Chinese firms' response to philanthropy is mainly strategic driven. Similarly, Li and Zhang (2010) conclude that Chinese firms' response to CSR is both politically and economically motivated. These studies collectively emphasize that Chinese firms tend to utilize donation as a strategic weapon to manage stakeholder relations. In particular, it is worthy to note that the political consideration is largely strategic because the government is a critical source of external uncertainty and interdependence facing EMFs in China (Du and Luo 2016; Hillman et al. 2009).
Statistics provided by the Ministry of Civil Affairs of China show that corporate charitable donation in China has risen consistently from year 2000 and reached its peak in 2008, largely resulting from people's philanthropic reaction to the major earthquake that struck China's Sichuan province in that year (see Fig. 1). On May 12, 2008, a catastrophic earthquake of immense magnitude (8.0 on the Richter scale) struck Wenchuan County, Sichuan province of China. Official figures state that 69,227 people were dead, 17,923 were missing and 374,643 were injured. It was both the most deadly and the strongest earthquake to hit China since the 1970s. This disaster immediately called for more financial and social disaster relief efforts from governments, individuals as well as firms. Almost half of the listed companies pledged to donate money, supplies and other relief efforts. According to the China Charity Foundation, both the number of firms donating and the amount of donation were unprecedented (see the report from http://Sina.com). Therefore, this catastrophic event greatly stimulated the subsequent corporate philanthropic disaster response (Zhang et al. 2010a), and these philanthropic involvements could be treated as a strategic tool to obtain social reputation and an important relationship...
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