the impact of internationalization on home country charitable … · 2020. 7. 29. · face...

RESEARCH ARTICLE

The Impact of Internationalization on Home CountryCharitable Donation: Evidence from Chinese Firms

Heng Liu1 • Jin-hui Luo2 • Victor Cui3

Received: 26 September 2016 / Revised: 7 December 2017 / Accepted: 15 January 2018 /

Published online: 19 February 2018

� Springer-Verlag GmbH Germany, part of Springer Nature 2018

Abstract Does internationalization promote or inhibit home country charita-

ble donation for firms from developing countries? This is an important question that

remains poorly studied. This paper aims to address this question by focusing on

Chinese internationalizing firms. We maintain that while broadening overseas

markets brings financial returns to Chinese firms, their domestic charitable donation

may decrease with the level of internationalization. Drawing on the resource

dependence theory, we argue that the more Chinese firms depend on overseas sales,

the less important domestic stakeholders are for their survival, and therefore they

are less likely to make charitable donations within China. Further, we maintain that

this negative relationship between internationalization and home country charita-

ble donation is attenuated by Chinese firms’ state-ownership. This is because state-

ownership provides the firms with alternative sources of critical resources that

alleviate their dependence on the international markets. We tested and supported our

theory using data collected from all public firms in China between 2008 and 2012.

Theoretical and policy implications are provided.

Keywords Internationalization � Charitable donation � Developingcountries � China � Resource dependence theory

& Jin-hui Luo

[email protected]

1 Lingnan (University) College, Sun Yat-sen University, Guangzhou, People’s Republic of China

2 School of Management, Xiamen University, Xiamen, Fujian, People’s Republic of China

3 Asper School of Business, University of Manitoba, Manitoba, Canada

123

Manag Int Rev (2018) 58:313–335

https://doi.org/10.1007/s11575-018-0343-5

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https://doi.org/10.1007/s11575-018-0343-5

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-

314 H. Liu et al.

123

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;

The Impact of Internationalization on Home Country… 315

123

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

0

10

20

30

40

50

60

70

80

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

RM

B (b

illio

n)

Year

Fig. 1 Corporate charitable donation in China. Source: Ministry of Civil Affairs of China

316 H. Liu et al.

123

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 catas-

trophic 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

cultivation method with local government authorities (Gao et al. 2012). In addition,

if a company has been defined as a social responsible one for the past generous, it

will more likely to be supposed to keep giving in the future to maintain their social

reputation, brand recognition and loyalty (Hurtado and Agudelo 2013). After 2 year

later (2010), another disastrous earthquake of 7.1 on the Richter scale struck Yushu

Country, Qinghai province of China. A large number of corporations also joined this

donation campaign. Collectively, we can see the disaster response of Wenchuan

earthquake is a starting point for Chinese firms’ actively participation in charita-

ble donations to show their citizenship and build good social and political rela-

tionships with various stakeholders.

2.2 Corporate Charitable Donation: A Resource Dependence Logic

Based on resource dependence theory, we argue that the extent of Chinese firms’

internationalization, reflecting their dependence on overseas markets, partly

determines their strategic choices regarding where to allocate their charitable do-

nations in order to maximize their legitimacy and acquisition of other critical

resources.

Resource Dependence Theory (RDT) asserts that organizations are ‘‘not

autonomous, but rather are constrained by a network of interdependencies with

other organizations’’ (Pfeffer 1987, p. 26). Because an organization normally

depends on their environment for resources, those external groups that provide such

resources can make claims on the organization, and the organization attempts to

satisfy the concerns of these external groups (Pfeffer and Salancik 1978). The extent

to which the organization depends on the external stakeholders is determined by the

importance of the resources to the organization’s survival as well as the availability

of alternative sources of such resources. If the organization is in great need of the

resources and there are few alternative sources, then the organization is heavily

dependent on these external stakeholders providing these resources (Pfeffer and

Salancik 1978; see Hillman et al. 2009; Mizruchi and Yoo 2017 for comprehensive

reviews). Those in need of key resources often attempt to secure those resources by

taking strategic actions such as mergers and acquisitions (Reuer and Ragozzino

2006) as well as establishing joint ventures and alliances with firms having those

resources (Park et al. 2002), or to alleviate their dependence upon others by

pursuing alternative sources of the resources (Hillman et al. 2009).

In this vein of literature, corporate charitable donation is considered to be an

important way to secure vital resources, such as endorsement from key stakeholders


123

http://Sina.com

in the community (Wang and Qian 2011) and political connections (e.g. Du and Luo

2016; Saiia et al. 2003). Firms with negative social performance with respect to

environmental protection and product safety could also use charitable donation as a

critical means to rebuild their legitimacy and reputation (Chen et al. 2008).

2.3 Internationalization and Home Market Charitable Donation

Following the RDT logic, we maintain that a Chinese firm’s internationalization

may have a negative effect on its domestic charitable donation. When a firm sells a

larger proportion of its products/services to international markets, the international

markets become strategically more important to the firm’s survival and growth

while its dependence on domestic markets is proportionally reduced (Finkelstein

1997). Consequentially, stakeholders in international markets gain stronger

influence over the firm (Agle et al. 1999; Hillman et al. 2009) and the influence

from home market stakeholders are reduced.

We argue that the location choice of corporate charitable donations is likely

dependent on the relative importance of various groups of stakeholders (i.e.

international vs. local) to the firm’s survival. If international stakeholders present

more salient threats or opportunities to the achievement of the firm’s core

objectives, the firm will likely prioritize their claims over those of other

stakeholders (Agle et al. 1999; Griffin and Mahon 1997). The more a firm is

dependent on overseas sales, the more important it is that the firm seeks to enhance

its legitimacy and other vital resources from its international stakeholders.

In contrast, the need to do so among its domestic stakeholders declines as they

become relatively less salient for a firm’s survival. Ceteris paribus, given a certain

budget for charitable donation, a Chinese firm will place less strategic importance to

its domestic stakeholders as it is more dependent on international sales. Given

charitable donation is made mainly out of strategic considerations by Chinese firms,

they are less likely to make charitable donation to domestic stakeholders as they

become more internationalized. We therefore predict:

Hypothesis 1: Chinese firms’ internationalization is negatively associated with

their home country charitable donation.

2.4 The Moderating Role of Firms’ State-Ownership

We further argue that the negative effect of firms’ internationalization on their

domestic charitable donation may be alleviated if alternative sources of critical

resources are available to the firms. Specifically, we focus on the role of Chinese

firms’ ownership structure, in terms of state vs. non-state ownership (Gaur and

Delios 2015; Zhang et al. 2007). In emerging economies such as China,

governments including central and local governments are among the most salient

institutions that influence firms’ behaviors, because they (a) have critical impact on

the development of regulatory policies, and (b) control financing and other key

scarce resources (Du and Luo 2016; Zhou et al. 2017). The institutional influence of

governments on firms is mainly manifested in state-ownership of firms (Park and

318 H. Liu et al.

123

Luo 2001; Sun et al. 2010). State-owned enterprises (SOEs) which are either wholly

or partially owned by the government have a significant presence in Chinese

economy, accounting for approximately 17% of urban employment and 22% of

industrial income (Curran 2015).

Firms in emerging economies normally ‘‘receive different treatment and resource

allocations from the government depending on their institutional and organizational

orientations, such as ownership’’ (Park and Luo 2001, p. 459). As government-

owned entities, SOEs in China are granted by the government and related agencies

privileges of gaining access to key factor resources, such as funding, land, and

infrastructure, to which Non-State-Owned enterprises (NSOEs) do not have access

(Peng et al. 2004; Sheng et al. 2011). For example, SOEs are normally provided

with exclusive benefits in terms of accessing large-scale loans from state-owned

banks (Xu and Zhang 2008) which control most of the lending capital (Chen et al.

2014), at low costs (Khwaja and Mian 2005) and with government subsidies

(Cuervo-Cazurra et al. 2014). In addition, SOEs are beneficiaries of government

policies that enable them to occupy a dominant or exclusive position in strategically

important and highly profitable sectors within China, such as telecommunication,

hydro, energy, petroleum processing, etc. (Musacchio and Lazzarini 2014).

In contrast, NSOEs are very disadvantaged in gaining key resources and policy

support domestically. For example, NSOEs typically face higher barriers to capital

from state-owned financial institutions in China because of their lack of political

backing and legitimacy (Park and Luo 2001). As a result, they have to incur much

higher costs to raise capital by turning to private financial institutions within China

or resorting to resources from abroad (Nee 1992). In addition, the entry barriers to

certain industries are substantially higher for NSOEs within China, forcing them to

rely more heavily on international markets for survival.

Because SOEs are provided with more abundant resources domestically than

NSOEs, which can be an alternative to the key resources that firms obtain

internationally, SOEs are comparably less dependent on international markets than

NSOEs. Utilizing of these restricted state-controlled resource is thus an important

way by which SOEs are able to find alternative resource supports that may alleviate

their dependence on foreign stakeholders. Because of the state ownership, SOEs are

typically endorsed by the central and local government, and tend to have better

connections with local networks, which gives them advantages of obtaining critical

resources such as capitals, lands, technologies, and subsidies. Since these SOEs are

provided with more abundant resources domestically, which can be an alternative to

resources obtained internationally, as such, the strategic importance of international

stakeholders to SOEs is reduced compared with NSOEs, which accordingly has an

implication for a firm’s location choice of charitable donations.

Meanwhile, state ownership may also create a political linkage between a firm

and its home-country institutions, when they enter overseas markets, they can be

perceived by their foreigner partners not simply as business entities, but also

political actors (He and Lyles 2008). Thus, state ownership as a form of third-party

coalition may alter the power dependence condition between Chinese internation-

alizing firms and their foreign stakeholders (Benito et al. 2016). Accordingly, at a

given level of internationalization, the negative effect of firms’ internationalization


123

on their domestic charitable donation is likely smaller if they are state-owned than

non-state-owned. Therefore, we hypothesize,

Hypothesis 2: A firm’s state-ownership negatively moderates the relationship

between its internationalization and home country charitable donation such

that the negative main effect is attenuated if the firm is state-owned than

otherwise.

3 Methodology

3.1 Sample

Our sample includes all public firms listed in the two Chinese stock markets,

Shanghai and Shenzhen, from 2008 to 2012. Our observation window starts from

2008 because public firms were formally required to report their social responsi-

bility activities from 2008 by the China Securities Regulatory Commission (CSRC),

equivalent to the Securities Exchange Commission (SEC) in the United States. To

control for unobserved heterogeneities, we focus on firms issuing only A-shares,

i.e., those traded within China using Chinese currency (Arquette et al. 2008).

Following prior studies, we excluded (a) financial firms, (b) firms whose transaction

status is ‘‘special treatment’’ (ST) or ‘‘suspended from trading’’ (*ST), and (c) firms

with negative net assets (Du and Luo 2016; Luo et al. 2017). The final data is an

unbalanced panel, with 7415 firm-year observations from 2099 firms: 1163

observations in year 2008, 1241 in 2009, 1352 in 2010, 1692 in 2011 and 1967 in

2012. We collected these firms’ internationalization information from the Wind

database and other information from the CSMAR database. Both Wind and CSMAR

are leading financial information providers specializing in Chinese public firms.

3.2 Measurement

3.2.1 Dependent Variable

Following prior studies (Jia and Zhang 2013; Zhang et al. 2010a, b), we measured

the dependent variable, a firm’s home country charitable donation (Donation_size)

as the actual amount of home country donation made by a firm in a given year. We

took the logarithm of Donation_size to reduce its distribution skewness. For

robustness checks, we also used three alternative measures, which will be discussed

in the section on robustness checks.

3.2.2 Independent Variable

Following prior studies, we calculated the level of internationalization using the

proportion of overseas sales in a firm’s total sales (Cheung et al. 2015; Fernandez

and Nieto 2006), and we treated sales to Hong Kong, Macao, and Taiwan as

320 H. Liu et al.

123

overseas revenue due to their substantially distinctive institutional environments

from Mainland China (Cheung et al. 2015; Tan et al. 2008).

3.2.3 Moderator

Following prior studies, we created a dummy variable SOE, which equals one if the

state has a firm’s majority ownership, and zero otherwise (Park and Luo 2001; Zhou

et al. 2017).

3.2.4 Control Variables

Following prior studies, we controlled for firm characteristics that may influence its

charitable donation decisions: firm size, measured as the logarithm of a firm’s total

assets, because it is usually positively associated with a firm’s charitable donations

(Brammer and Millington 2008; Cheung et al. 2015); leverage, measured as the

ratio of total liabilities to total assets of a firm, reflecting the firm’s need to pay off

debt interest with cash, which then reduces its capacity to make charitable donations

(Adams and Hardwick 1998); institutional ownership, measured as the ratio of all

institutional investors’ shares to a firm’s total shares, because institutional

investment is positively related to a firm’s corporate social performance (Carroll

1991; Cox et al. 2004); board characteristics, including board size (the number of

directors on the board), board independence (the proportion of independent

directors on the board), and CEO duality (a dummy variable which equals one if the

same individual serves as both the CEO and the chairman of the board, and zero

otherwise), because it is the board of directors that makes critical decisions such as

charitable donations in China (Brown et al. 2006; Coffey and Wang 1998; Jia and

Zhang 2013); political connections, a dummy variable equaling one if the CEO or

chairman of board of directors had political experiences including serving in the

government, the Communist Party committee, the People’s Congress, the People’s

Political Consultative committee, the People’s Court, the People’s Procuratorate, or

the People’s Bank at state or local levels, and zero otherwise, because politically

connected firms tend to donate more in China (Li et al. 2015; Luo et al. 2017). In

addition, we also controlled for industrial competitive conditions, Industry HHI,

measured as the Herfindahl–Hirschman Index of sales revenue for all listed firms

within an industry, because the level of industrial competition negatively affects a

firm’s decisions to donate (Bhambri and Sonnenfeld 1988; Brammer and Millington

2008). Following previous studies indicating that a firm’s charitable donations are

affected by its institutional environment (Wang and Qian 2011; Luo et al. 2017), we

controlled for institutional variations across the 31 provinces or equivalent regions

in China using the National Economic Research Institute’s marketization index,

coded as formal institutions (Fan et al. 2011). Finally, we included 12 industry

dummies coded according to CSRC’s Guidelines for Classification of Listed

Companies, as well as year dummies to control for unobserved industry and year

effects respectively.


123

3.3 Statistical Models

As the value of dependent variable Donation_size is equal to or greater than zero

and thus does not follow a normal distribution, we would draw biased and

inconsistent estimations if we employ OLS regression models. In this case, a Tobit

estimator is more appropriate, which generates unbiased and consistent estimations.

We lagged the dependent and predicting variables by 1 year, winsorized all

continuous variables at the 1 and 99% levels to reduce the noise of outliers, and

reported robust (Huber-White) standard errors (White 1980). In addition, we also

conducted the 2SLS model to address potential concerns of endogeneity, which is

discussed in detail in the section on Robustness Checks. When we use Donation_-

dummy as an alternative measure of the dependent variable, we applied Logistic

regressions for estimation (Wooldridge 2009).

3.4 Results

Table 1 reports the means, standard deviations, and zero-order correlations of the

variables. Consistent with our expectations, corporate charitable donation (i.e.

Donation_dummy and Donation_size) is negatively correlated with international-

ization, but positively correlated with SOE, institutional ownership, and political

connections. The correlation coefficients among key variables are relative small. We

also investigated potential multicollinearity problem using variance inflation factors

(VIFs). The maximum VIF value obtained is 9.27, and its mean is 4.56, both lower

than the rule-of-thumb cut-off of 10 (Ryan 1997), suggesting that multicollinearity

is not a serious concern in our model.

Table 2 reports the regression results for testing Hypothesis 1. In Models 1–4, the

dependent variable is Donation_size. We adopted the hierarchical regression

approach to test our hypotheses. Models 1 is the base-line model, which includes

only control and moderating variables.

In Model 2 we included the independent variable internationalization to test

Hypothesis 1. The result shows that internationalization is negatively associated

with Donation_size (b = - 6.624, p\ 0.05), supporting Hypothesis 1.

In Models 3 and 4, we test Hypothesis 2, regarding the moderating effect of SOE.

We separated the full sample into two subgroups according to the value of SOE: the

SOE subgroup with SOE = 1 and the NSOE subgroup with SOE = 0, and then ran

the regression model in each subgroup. Results in Models 3 and 4 indicate that the

negative effect of internationalization on Donation_size is stronger in the NSOE

subgroup (Model 3: b = - 7.741, p\ 0.05) than in the SOE subgroup (Model

4:b = - 3.323, p[ 0.10). These results suggest that SOE negatively moderates the

main effect. Following Aiken and West (1991), we plotted this moderation effect in

Fig. 2. Both the statistical test and figure support Hypothesis 2.

3.5 Robustness Checks

We conducted two robustness checks. First, we checked whether our findings are

robust to alternative measures of the dependent variable, a firm’s home country

322 H. Liu et al.

123

Table

1Descriptivestatistics

andPearsoncorrelationcoefficients(N

=7415)

Variables

Mean

SD

12

34

56

78

910

11

12

1Donation_dummy

0.085

0.279

1

2Donation_size

1.178

3.893

0.992***

1

3Internationalization

0.089

0.184-

0.035***-

0.036***

1

4State-owned

enterprises

0.448

0.497

0.028**

0.027**

-0.048***

1

5Form

alinstitutions

8.864

1.983

0.027**

0.025**

0.162***-

0.204***

1

6Firm

size

21.571

1.085

0.281***

0.295***-

0.066***

0.251***-

0.026**

1

7Leverage

0.447

0.210

0.047***

0.053***-

0.033***

0.259***-

0.129***

0.439***

1

8Industry

HHI

0.046

0.067

0.019

0.020*

-0.126***

0.074***-

0.059***

0.096***

0.012

1

9Institutional

ownership

0.467

0.229

0.087***

0.094***-

0.022*

0.218***-

0.079***

0.294***

0.119***

0.047***

1

10Boardsize

9.079

1.793

0.079***

0.083***-

0.014

0.203***-

0.089***

0.279***

0.149***

0.052***

0.163***

1

11Board

independence

0.364

0.049

0.033***

0.038***-

0.043***-

0.065***-

0.008

0.017

-0.027**

0.016

-0.048***-

0.312***1

12CEO

duality

0.203

0.402-

0.025**

-0.025**

0.044***-

0.254***

0.147***-

0.183***-

0.209***-

0.017

-0.131***-

0.138***0.071***

1

13Political

connections

0.462

0.499

0.075***

0.078***-

0.022*

-0.067***

0.044***

0.078***-

0.022*

-0.047***

0.025**

0.032***0.017

-0.038***

*p\

0.10;**p\

0.05;***p\

0.01


123

Table

2Regressionresultsfortestinghypotheses

Dependentvariable:Donation_size

Dependentvariable:Donation_dummy

Model

1Model

2Model

3Model

4Model

5Model

6Model

7Model

8

Fullsample

Fullsample

SOE=

0SOE=

1Fullsample

Fullsample

SOE=

0SOE=

1

Firm

size

11.064***

11.001***

10.282***

11.681***

1.007***

1.003***

0.907***

1.117***

[21.862]

[21.731]

[13.368]

[17.743]

[18.315]

[18.231]

[11.469]

[13.958]

Leverage

-21.053***

-20.681***

-9.381**

-35.174***

-1.816***

-1.793***

-0.673*

-3.325***

[-7.423]

[-7.315]

[-2.363]

[-8.999]

[-6.719]

[-6.636]

[-1.875]

[-8.009]

Industry

HHI

-71.828

-72.640

16.334

-153.143

-6.747

-6.777

-0.353

-12.678

[-0.859]

[-0.870]

[0.129]

[-1.479]

[-0.815]

[-0.820]

[-0.029]

[-1.151]

Institutional

ownership

3.920*

3.891*

3.559

2.408

0.332

0.329

0.303

0.213

[1.779]

[1.769]

[1.202]

[0.729]

[1.591]

[1.578]

[1.099]

[0.640]

Boardsize

0.306

0.306

0.305

0.150

0.025

0.025

0.031

0.003

[1.114]

[1.118]

[0.691]

[0.421]

[0.962]

[0.986]

[0.778]

[0.080]

Boardindependence

7.560

7.451

15.147

-3.633

0.880

0.857

1.590

0.002

[0.817]

[0.804]

[1.092]

[-0.299]

[0.988]

[0.957]

[1.194]

[0.001]

CEO

duality

0.909

0.897

0.131

4.119*

0.113

0.113

0.049

0.393

[0.684]

[0.675]

[0.081]

[1.763]

[0.881]

[0.879]

[0.319]

[1.609]

Politicalconnections

4.944***

4.886***

5.421***

4.886***

0.434***

0.429***

0.468***

0.454***

[5.081]

[5.021]

[3.894]

[3.616]

[4.652]

[4.594]

[3.586]

[3.280]

Form

alinstitutions(M

KT)

0.224

0.321

0.569

0.073

0.028

0.036

0.058*

0.019

[0.923]

[1.300]

[1.628]

[0.209]

[1.233]

[1.573]

[1.812]

[0.550]

Intercept

-264.710***

-264.094***

-266.312***

-257.204***

-24.132***

-24.102***

-23.514***

-24.744***

[-22.734]

[-22.689]

[-15.210]

[-17.211]

[-19.220]

[-19.210]

[-12.796]

[-14.084]

State-owned

enterprises(SOE)

-0.196

-0.185

––

0.021

0.020

––

[-0.183]

[-0.174]

––

[0.203]

[0.193]

––

324 H. Liu et al.

123

Table

2continued



Model

1Model

2Model

3Model

4Model

5Model

6Model

7Model

8

Fullsample

Fullsample

SOE=

0SOE=

1Fullsample

Fullsample

SOE=

0SOE=

1

Internationalization

-6.624**

-7.741**

-3.323

-0.590**

-0.596*

-0.382

[-2.250]

[-1.986]

[-0.718]

[-2.087]

[-1.682]

[-0.784]

N7415

7415

4096

3319

7415

7415

4096

3263

PseudoR2

9.43%

9.48%

8.76%

11.50%

18.58%

18.67%

17.12%

22.26%

Leftcensoredobs.

6784

6784

3776

3008

Loglikelihood

-3970.4067

-3968.0584

-2055.6167

-1882.9415

-1757.2164

-1755.1584

-930.7161

-798.1374

Z/T-statistics,based

onstandarderrors

adjusted

forHuber-W

hite,

arein

parentheses

Two-tailedtests

Industry

andyeardummieswereincluded

butnotreported

*p\

0.10;**p\

0.05;***p\

0.01


123

charitable donation. We used three other measures: (a) a dummy variable,

Donation_dummy, which equals one if a firm made a donation in a given year in

China, and zero otherwise; (b) the ratio of home country donations to a firm’s total

assets, and (c) the ratio of home country donations to a firm’s total operating

revenues (Brammer and Millington 2008; Brown et al. 2006; Jia and Zhang 2015);

all of the results are robust. To save space, we only reported the results using

Donation_dummy as the dependent variable in Models 5–8. Other results are

available upon request.

Second, we also checked whether our findings are robust to a potential

endogeneity problem, and specifically the reverse causality, that is, whether Chinese

firms with lower propensity to donate domestically tend to go global. We conducted

a two-stage least square (2sls) model to address this concern. In the first stage, we

ran a Probit model to predict the likelihood that a firm will go international by using

all control variables and an instrument, the firm’s geographic distance to ports.

Theoretically, a firm is more likely to go global if it is closer to ports, yet its

geographic proximity to ports has no direct relationship with its decision to make

charitable donation. Thus, a firm’s geographic distance to ports is a proper

instrumental variable for the likelihood of the firm’s internationalization.

We measured geographic distance to ports as the distance between a firm and

one of the top 20 ports in China that is the closest to the firm geographically. We

generated inverse Mills ratio from the first stage model and included it in the second

stage models. Table 3 reports the results of the 2sls analysis. The results are

consistent with our main findings, suggesting that reverse causality is not a major

concern in our study.

Don

ation_

size

0 .2 .4 .6 .8 1


SOE=0 SOE=1

Fig. 2 The moderation effect of firms’ state ownership

326 H. Liu et al.

123

Table

3RegressionresultsbyusingHeckman

two-stageselectionmodel



Model

1Model

2Model

3Model

4Model

5Model

6

Fullsample

SOE=

0SOE=

1Fullsample

SOE=

0SOE=

1

Firm

size

12.009***

12.175***

11.884***

1.114***

1.114***

1.124***

[12.979]

[8.585]

[9.865]

[11.850]

[7.854]

[8.749]

Leverage

-15.903***

0.071

-34.221***

-1.270***

0.339

-3.294***

[-3.370]

[0.010]

[-5.190]

[-2.804]

[0.514]

[-4.800]

Industry

HHI

-54.086

55.474

-149.952

-4.692

4.115

-12.572

[-0.633]

[0.426]

[-1.409]

[-0.556]

[0.328]

[-1.115]

Institutional

ownership

3.016

1.924

2.242

0.234

0.126

0.208

[1.311]

[0.615]

[0.652]

[1.068]

[0.427]

[0.600]

Boardsize

0.354

0.443

0.159

0.031

0.046

0.003

[1.283]

[0.990]

[0.440]

[1.177]

[1.112]

[0.086]

Boardindependence

2.207

6.757

-4.798

0.281

0.664

-0.035

[0.218]

[0.453]

[-0.363]

[0.290]

[0.465]

[-0.026]

CEO

duality

0.783

-0.069

4.080*

0.103

0.033

0.392

[0.591]

[-0.043]

[1.743]

[0.805]

[0.213]

[1.605]

Politicalconnections

1.289

2.429**

0.262

0.338***

0.294*

0.449***

[1.637]

[2.035]

[0.247]

[3.074]

[1.837]

[2.839]

Form

alinstitutions(M

KT)

4.030***

3.792**

4.710***

0.142*

0.258**

0.025

[3.506]

[2.237]

[3.009]

[1.884]

[2.278]

[0.236]

Intercept

-312.440***

-359.878***

-266.565***

-29.419***

-33.661***

-25.047***

[-7.917]

[-5.896]

[-5.181]

[-7.561]

[-5.628]

[-4.751]

Inverse

MillsRatio

13.477

26.154

2.673

1.483

2.823*

0.087

[1.276]

[1.605]

[0.189]

[1.452]

[1.805]

[0.061]


123

Table

3continued



Model

1Model

2Model

3Model

4Model

5Model

6

Fullsample

SOE=

0SOE=

1Fullsample

SOE=

0SOE=

1

State-owned

enterprises(SOE)

0.817

––

0.130

––

[0.621]

––

[1.030]

––


-6.856**

-8.365**

-3.340

-0.617**

-0.660*

-0.382

[-2.319]

[-2.130]

[-0.721]

[-2.166]

[-1.841]

[-0.786]

N7415

4096

3319

7415

4096

3263

PseudoR2

9.50%

8.81%

11.50%

18.72%

17.27%

22.26%

Leftcensoredobs.

6784

3776

3008

Loglikelihood

-3967.3554

-2054.4418

-1882.9276

-1754.2059

-929.0856

-798.1359

Z/T-statistics,based

onstandarderrors

adjusted

forHuber-W

hite,

arein

parentheses

Two-tailedtests

Industry

andyeardummieswereincluded

butnotreported

*p\

0.10;**p\

0.05;***p\

0.01

328 H. Liu et al.

123

4 Discussion

While prior research has found that firms’ internationalization has a positive effect

on their home country charitable donation in developed countries (e.g. Adams and

Hardwick 1998; Brammer et al. 2009), this paper contributes to the literature by

finding that this relationship is negative in an emerging economy, China. Following

the resource dependence logic, we maintain that the more Chinese firms

internationalize, the more they depend on the international market for survival

and therefore less likely to donate domestically. The different effect we found in

China is consistent with prior studies on cultural and economic drivers of

charitable donation, which differ between emerging and developed economies.

While corporate charitable donation has a long history in Western developed

countries, it has yet to become a culture in China. Firms in developed countries may

be mainly motivated to make charitable donation due to high-order calling for

morality and altruism (Campbell et al. 1999; Sanchez 2000), whereas Chinese firms

donate primarily out of economic considerations, at least in the past 10 years (Jia

and Zhang 2013; Luo et al. 2017; Zhang 2010a, b). If a market weighs less for

maximizing a firm’s profitability, then Chinese firms tend to reduce their investment

in maintaining stakeholder relationships in that market.

This paper further complements prior studies by investigating whether the

relationship between internationalization and a firm’s charitable donation is

influenced by important institutional characteristics featuring emerging economies.

In particular, we focus on firms’ state ownership. We found that NSOEs are less

likely to donate than SOEs, given the same level of internationalization. We argue

that this is mainly because NSOEs normally have more constrained access to

alternative sources of critical resources, which are normally controlled by the state

in emerging economies. Our findings indicate that even though internationalization

may improve firms’ financial performance, it does not always result in more

charitable contribution to their home countries, especially for NSOEs. These

findings contribute to the literature by showing the importance of institutional

context in determining the relationship between firms’ globalization strategy and

domestic charitable donation.

This paper also adds to the debate on whether firms’ internationalization has a

positive or negative effect on their social performance in general. Many studies have

come to different conclusions regarding this relationship by focusing on firms’

overall CSR performance. Recognizing the multifaceted nature of firms’ social

performance, this study focuses on only corporate charitable donation, one

important dimension of social performance. Our findings suggest that this

controversy may be reconciled by taking a more fine-tuned approach such as

examining this debatable relationship along various dimensions of firms’ social

performance. Future investigations about the impacts of internationalization upon

other dimensions of social performance are warranted.

In addition, our paper has made some suggestions for policymakers in developing

countries. We observed that because of state ownership and the unequal access to

state-controlled resources, NSOEs are less likely or able to make


123

charitable donations to their home country, even though they might be willing to do

so. Given the large percentage of NSOEs in emerging countries such as China (e.g.

Chen and Feng 2000) and the greater social roles that they have been playing (e.g.

Kolk et al. 2010), the government may consider readjusting its policies that have

been biasedly favoring SOEs in resource allocation. With resources more easily

obtained from home countries, NSOEs could make a greater contribution to local

societal and community development, which is in line with the objectives of

developing countries.

Our study has several important limitations that call for future investigations.

First, we tested our hypotheses using Chinese listed firms only, therefore we must be

cautious about the extent to which our findings can be generalized to private firms

and to other developing countries. As noted before, the relationship in question may

vary in different institutional contexts. Future studies may prove fruitful by

extending our research framework to samples containing other types of Chinese

firms or from other emerging or developing economies.

Second, our study does not distinguish between different modes of internation-

alization such as export, joint venture, and foreign direct investment (Zahra et al.

2000). To the extent that different modes are associated with distinct decision logics

and relationships with foreign and domestic stakeholders (Benito et al. 2011), their

impact on firms’ domestic charitable donation may vary as well. Future research

along this line may be able to make further contribution to the literature.

Third, while our focus is domestic donation, future studies may also probe the

influences upon international donation. For instance, we may argue that political

ownership may have a moderating effect upon the internationalization—interna-

tional market donation linkage. Specifically, as we indicated before, state ownership

may create a political linkage between a firm and its home-country institutions, and

they can be perceived by their foreigner partners not simply as business entities, but

also political actors (He and Lyles 2008). Accordingly, state ownership as a form of

third-party coalition alters the power dependence between Chinese firms and their

foreign stakeholders, thus the pressure to satisfy foreign stakeholders is reduced

since the firm with state ownership may be perceived by foreign partners as more

powerful. In contrast, due to the reason that managers with sufficient skills to run

global business is comparatively rare in SOEs, the employment risk for these

managers is quite low that these managers are more likely to have discretions to

make international charitable donations. Since these two logics suggest different

directions, future empirical studies are needed to probe this issue more thoroughly.

Finally, we did not examine whether and how internationalization may affect

other important dimensions of firms’ social performance, such as environmental

protection, fair compensation to employees, diversity, political accountability, etc.

(Dyer and Whetten 2006). A more comprehensive examination of firms’ interna-

tionalization and these different sub-dimensions in the context of developing or

developed economies may generate more insights that can further shed light on the

debate about this internationalization—social performance relationship. Meanwhile,

the possible relations between donations with three other categories of CSR also

deserves future investigation. The economic responsibility is ‘to produce goods and

services that society desires and to sell them at a profit’ (Carroll 1979, p. 500),

330 H. Liu et al.

123

which provides a return to shareholders and creates jobs. While in short term

speaking, the donation often indicates a cost which may negatively affect

maximizing shareholders; in long term speaking, donations may sometimes

contribute to better shareholders’ interests by strengthening legitimacy and

reputation, attracting employees (Evans and Davis 2011) as well as building

idiosyncratic competitive advantage. The legal responsibility is the codified

obligations put on businesses by the laws. The China’s central government

officially promulgated the charity law of PRC in 2016, which clearly encourages

firms to carry out charitable activities in accordance with the law. While the

relations between legal responsibility and philanthropic responsibility are not

theoretically determined, future empirical studies are needed to explore the impact

of this newly issued law upon the subsequently corporate charitable donations. The

ethical responsibility encompasses activities that are not codified into laws, but are

expected of business for fair and justice by societal members such as respecting

people, avoiding social harm, preventing social injury, and protecting environments

(Carroll 1991). Theoretically, we may propose that if the CSR is mainly driven by

the altruistic value, we could see a positive association between donation and ethical

responsibilities since they are activated by similar altruistic motivations. In contrast,

if the firm’s CSR is mainly driven by strategic and political reasons, we may see a

substitutive role between donation and other ethical responsible behaviors since

these publicity strategies for attracting resources and support from outside

stakeholders can play substitutive roles to fulfill the legitimacy-building goals.

5 Conclusion

This research examines the relationship between firms’ internationalization and

domestic charitable donation in the Chinese context. From a RDT perspective, we

maintain and find that Chinese public firms’ internationalization negatively affects

their domestic donation. This negative effect is stronger for non-state owned than

state-owned enterprises. This paper highlights the roles of resource dependence and

institutional difference in determining the relationship in question, and calls for a

more nuanced approach to reconciling the debate regarding the effect of

internationalization on firms’ social performance.

Acknowledgements We would like to thank valuable comments and suggestions from two anonymous

reviewers, as well as participants at the 2015 AOM annual meeting and the AIB 2017 Dubai conference.

We acknowledge financial support from the Chinese National Science Funds (Grant No. 71572160 and

71672197) and the Key Research Project of Guangdong Province (Grant No. 2016WZDXM001). All

remaining errors are our own.

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