۱- Introduction

۲- Literature review

۳- Institutional background and hypothesis

۴- Research design

۵- Empirical results

۶- Further analysis

۷- Discussion and conclusions

References

Abstract

This study investigates the differences between zombie firms and non-zombie firms in corporate social responsibility activities such as reporting, disclosure and fulfillment. Using Chinese listing company data collected from 2009 to 2016, we apply a three stage model with a double Heckman correction to deal with potential self-selection/endogeneity bias and to measure the differences consistently. We found that zombie firms are less willing to release standalone corporate social responsibility reports than non-zombie firms. Among companies that release standalone corporate social responsibility reports, the corporate social responsibility disclosure of zombie firms is at least not worse than non-zombie firms, but the corporate social responsibility fulfillment is significantly lower. We conclude from this gap between disclosure and fulfillment to the hypocritical behavior of zombie firms, due to the absence of control in corporate social responsibility. We suggest that government should enhance supervision over zombie firms’ corporate social responsibility activities and subsidies towards them in order to lower their economic damage. Supplementary analyses provide some clues concerning the heterogeneity of inconsistence in term of external support characteristics, ownership and censorship which require further studies.

Introduction

“Zombie firm” refers to companies that should go bankrupt because of low efficiency and unprofitability but still survive thanks to external support of government or bank sector (Kane, 1987). Zombie firms pose potentially very high threats to the economy as a whole, not only because of being inefficient and sluggish, but also due to the “spillover effect” as they distort market rules and undermine the competitiveness and innovation of the non-zombie firms (Caballero et al., 2008; Urionabarrenetxea et al., 2018). Despite their negative economic impact, the Chinese government, especially local governments, still help zombie firms because they “believe” that zombie firms take corporate social responsibilities (CSR), such as employment, social security, environmental protection, etc. (Banerjee and Hofmann, 2018; Caballero et al., 2008; Fukuda and Nakamura, 2011; Han et al., 2019; Kwon et al., 2015; Tan et al., 2016). The purpose of this paper is to answer the key question: do zombie firms really take adequate “social responsibilities” as expected? Although a large number of studies have shown that participation in CSR activities can bring economic benefits to the firm, such returns are often of a long-term and uncertain nature (Nikolaeva and Bicho, 2011), and they might be perceived differently by zombie and non-zombie firms. Given the special characteristics of zombie firms and the Chinese economic/institution background, we are firstly interested in their CSR reports release behavior as compared to non-zombie firms. Moreover, CSR activities can be separated into CSR fulfillment (CSRF) and CSR disclosure (CSRD). Compared to CSRD activities, CSRF requires much more resources, so that image manipulation (CSRD) is much easier than actual fulfillment (Thorne et al., 2014). In the literature (Fassin and Buelens, 2011; Jahdi and Acikdilli, 2009), the gap between CSRD and CSRF is often qualified as hypocrisy. Because CSRD does not contain financial information and does actually lack strict supervision, zombie firms should have stronger incentive to play hypocrisy than other firms in order to keep their external support.