Political Connections, Charitable Donations and Government Subsidies: Empirical Evidence from Money-losing Listed Companies in China

Du Yong, Chen Jianying

Journal of Finance and Economics Vol. 42, Issue 05, pp. 4 - 14 (2016)  DOI:10.16538/j.cnki.jfe.2016.05.001

Abstract

This paper takes the money-losing listed companies from 2009 to 2012 in China as the research sample, and uses the social network theory to analyze and test the influence of top-executives' political connections on government subsidies obtained by money-losing enterprises through charitable donations. The empirical results are shown as follows: firstly, money-losing enterprises with political connections are more easily to implement charitable donations in virtue of the access to government support than those without political connections, and the width of top-executives' political connections has more positive impact on charitable donations in money-losing enterprises than the depth of top-executives' political connections; at the same time, the local political connections of top executives with respect to the central political connections have more positive influence on charitable donations in money-losing enterprises; secondly, based on the "mutual benefit" principle and in order to encourage enterprises to actively fulfill their social responsibilities, the governments usually tend to give more financial subsidies to the enterprises with charitable donations; thirdly, compared to money-losing enterprises without political connections, money-losing enterprises with political connections can get more government assistance by charitable donations, and compared to money-losing enterprises with central political connections, money-losing enterprises with local political connections can obtain more obvious "support" effects of government subsidies through charitable donations; and money-losing enterprises which have the wider range of political connections can receive more government grants through charitable donations. The research findings deepen the understanding of charitable donation motivation and economic consequences in money-losing listed companies, and provide a useful inspiration for the relevant departments to regulate corporate philanthropy.

Keywords

money-losing enterprise; political connection; charitable donation; government subsidy