The CEO's Representation of Demands and the Corporation's Response to External Pressures: Do Politically Affiliated Firms Donate More?

Abstract

This study seeks to explain why firms respond in different ways to similar external administrative pressures, such as government demands for charitable giving, particularly in a transitional economy such as China's. Taking the perspective of the CEO's representation on external demands, the study explores the relationship between political affiliation and corporate giving, stimulated by powerful and politically affiliated CEOs, who are the government's natural constituency and who comply with governmental demands for donation. The study introduces contingent factors that influence the CEO's perception of how to satisfy government demands, and that moderate the relationship between political affiliation and corporate giving. Using firm-level data of corporate contributions following the Sichuan earthquake of May 12, 2008, we find that corporations with CEOs who hold political affiliations have a significantly higher probability of donation and also more cash giving. This relationship is moderated by contingent factors such as government ownership, financial condition, and concentration of voting rights.