The impact of political turnover on corporate misconduct and philanthropy: evidence from China

This paper investigates the moderating effect of political turnover on the relationship between corporate misconduct and corporate philanthropy. By using panel data from Chinese listed companies, we first demonstrate a positive relationship between fraudulent firms and their philanthropic engagement. We find that when the local city is experiencing turnover of mayors, firms that engage in misconduct will donate more than usual. Our results suggest that firms have incentives to “whitewash” their potential mistakes and maintain a good relationship with the government due to the uncertainty of the political environment. In addition, for privately owned companies, the moderating effect of political turnover would be even more significant as the development of firms largely depends on “Guanxi” with the local government. Our research develops the literature on corporate misconduct by emphasizing the importance of political factors for enterprises. In engaging with how firms develop their donation strategy, it provides insights for practitioners.