Poster #57 - Carrots or Sticks? Political Returns to Corporate Philanthropy in China

• In Event: Friday Poster Reception

Abstract

Corporate philanthropy has become a global phenomenon, with firms providing significant private funding for social welfare and public causes. Yet why firms donate, and where they direct their giving, remains contested. Beyond altruism and reputational considerations, a growing body of scholarship argues that corporate giving also serves strategic political purposes. If so, charitable resources may flow not to where social needs are greatest but to where political returns are highest. This raises important questions about the allocative efficiency of private giving and the nature of business-government relations. China offers a valuable setting to examine this, as local governments exercise substantial discretion over both resource allocation and regulatory enforcement. This paper asks whether corporate donations generate political returns through two channels: obtaining greater government rewards, avoiding regulatory punishments, or both. To answer this question, we construct a novel firm-province-year panel for Chinese listed firms and their subsidiaries, matching the geographic distribution of corporate charitable donations with government subsidies received and administrative penalties imposed at the provincial level. This structure allows us to exploit within-firm variation across provinces using firm-by-year and province-by-year fixed effects. We ask whether a firm and its subsidiaries receive more favorable treatment in provinces where the firm directs more charitable giving. Our findings show strong and consistent evidence for the reward channel. Donations to a province are followed by significant increases in government subsidies from that province. By contrast, we find limited support for a general penalty avoidance effect. Donations do not systematically reduce administrative penalties overall, but evidence for regulatory protection emerges in less marketized provinces where local enforcement discretion is greater. Further analysis reveals that the reward effect is stronger for non-state-owned enterprises, during anti-corruption campaigns, when donations to government-organized NGOs (GONGOs), and when donations are more financially costly. These patterns suggest that corporate philanthropy functions as a relationship-building tool and a politically legible signal that helps firms access government support, particularly when informal channels of political exchange become more constrained. This paper contributes to research on corporate political strategy, government-business relations, and nonprofit governance by demonstrating that the political returns to philanthropy are asymmetric across the reward and punishment channels. Our findings also carry important policy implications. First, the geographic specificity of these returns suggests that requiring firms to disclose where they donate, not just how much, could help identify strategic giving. Second, anti-corruption enforcement may redirect political exchange toward legitimate channels rather than eliminating it. More fundamentally, because the effectiveness of politically motivated corporate philanthropy depends on government discretion, reducing that discretion through formulaic subsidy criteria and centralized regulatory oversight may prove more effective than targeting the donations themselves.

Author

• Caixin Jiang
  Presenting Author