This study investigates the impact of firms’ business group affiliations on their performance in corporate social responsibility (CSR) in the context of China. We find that firms with a dual-status of simultaneously being a business group member and a state-owned enterprise (SOE) have weaker CSR performance. Our finding is consistent with the view that CSR engagement is a strategy for firms to pursue political legitimacy from the government and seek legitimacy in general from the public. The business group affiliation and the SOE identity together afford legitimacy to the firm and reduce its need to conduct CSR activities.

Introduction

A business group is a prevalent organizational structure around the world, particularly in emerging markets (Khanna, 2000). It is a coalition of companies that are legally separate but bound together by a controlling firm either directly or indirectly through economic or social connections (Granovetter, 1995; Fan, Jin, & Zheng, 2016). Many prior studies (e.g., Keister, 1998, 2009; Carney, Shapiro, & Tang, 2009; Guest & Sutherland, 2010; He, Mao, Rui, & Zha, 2013) have investigated the effect of business groups on their member firms’ financial performance, but the impact of groups on member firms’ performance in corporate social responsibility (CSR) has remained unexplored. This study intends to fill the void by examining the CSR performance of Chinese firms affiliated with business groups. Given the growing interest around the globe in CSR, it is important to understand how business groups, a ubiquitous economic construct in emerging markets (e.g., Brazil, Chile, China, India, Indonesia, Mexico, Pakistan, and Thailand) and also in some developed countries such as Italy and Sweden (Khanna & Yafeh, 2007), affect member firms in this aspect. We choose to conduct the study in the China context because this country’s special institutional environment provides researchers with great opportunities to examine business groups and CSR related issues. After three decades of rapid growth, China has become the second-largest economy in the world. This country’s spectacular economic achievement has come with a big price of the severely polluted natural environment and pressing social problems. In view of the environmental and societal challenges, the Chinese government has advocated a “Harmonious Society” and urged companies to be socially responsible since 2006 (See, 2009; Marquis, Zhang, & Zhou, 2011). Business groups, a structure encouraged and supported by the Chinese government (Keister, 1998; Ma & Lu, 2005; Guest & Sutherland, 2010) and being a major actor in the country’s economic development, undoubtedly play an important role in fulfilling firms’ social responsibility. So far, however, there is no systemic evidence showing whether Chinese firms associated with business groups perform better or worse in CSR than stand-alone companies. To the best of our knowledge, this study is the first to provide large sample empirical evidence concerning this important issue.