This study proposes an integrative approach to corporate nonmarket strategy by examining how corporate social responsibility (CSR) and corporate political activities (CPAs) interactively affect firms’ financial performance in China. Drawing on the social exchange theory and CPA and CSR literature, we propose CSR and CPA have a positive joint effect on firms’ financial performance and explore how institutional heterogeneities alter the strength of this effect. Based on a panel dataset of Chinese listed firms from 2009 to 2015, we found a positive interaction between CSR and central-level political connections on firms’ financial performance, and the positive interaction is stronger when the government involvement is high but weaker when guanxi is prevalent. However, we did not find similar results with local-level political connections. Our study contributes to the nonmarket strategy literature by integrating two normally separate lines of research, and emphasizing the value of managing nonmarket environments in an integrative manner.

Introduction

Beyond the market environment, firms are embedded in the nonmarket environment consisting of social and institutional arrangements that structure their interactions with different stakeholders (Baron, 1995). Effective management of the nonmarket environment not only shapes the market environment that firms compete in, but also enhances and sustains their competitive advantages (Baron, 1995; Bonardi, Holburn, & Bergh, 2006; Porter & Kramer, 2002). Corporate social responsibility (CSR) and corporate political activities (CPAs) are two instrumental approaches that firms use to manage their nonmarket environment strategically. Although under the unitary notion of nonmarket strategy, the CSR and CPA literature have developed largely in isolation with limited integration, which has been highlighted as an important knowledge gap in the nonmarket strategy literature (Frynas & Stephens, 2015; Mellahi, Frynas, Sun, & Siegel, 2016).