We do not regard managers who worked for a foreign branch of a Chinese company or those employed by a Chinese branch of a foreign company as having foreign experience, ensuring that this measure can capture actual exposure to a foreign environment. Considering that CSR investment is part of corporate management decisions, we adopt a narrow definition of managers i.
The board of directors is not considered in this paper since directors play a relatively small monitoring and consulting role in corporations. In addition, we further clarify the countries where managers obtained their foreign experience. We cluster standard errors by firm to control for cross-sectional correlation. We estimate the following regression model:. CSR is the dependent variable. CSR score and rate are both released by Hexun. Returnee is the test variable, measured by whether firm i has returnee managers and the number of returnee managers in year t.
Based on previous CSR literature, we include the following control variables in the analysis. State-owned enterprises take on more social and political responsibilities from the government. In this study, state control is defined as a dummy variable equals 1 if the firm is a state-owned entity either controlled by the central Chinese government or the local government and 0 otherwise. Independent directors have the privilege to provide a voice for small shareholders when their interests are adversely affected.
Board independence is measured as the proportion of independent directors to the total number of directors on a board. Power balance represents the relative balancing ability of the other shareholders to the largest shareholder. Large shareholders can obtain private benefits at the expense of other shareholders. When the balancing power is stronger, firms are more likely to engage in CSR activities.
Power balance is measured as the ratio of the number of shares held by the largest shareholder divided by the sum of the number of shares held by the second to the fifth largest shareholders. If the CEO and chairman is the same person, the CEO has more power and receives less monitoring from the board of directors. Duality is defined as a dummy variable that equals 1 if the chairman and CEO is the same person and 0 otherwise. CSR engagement is a principle-agent relation between managers and shareholders Barnea and Rubin Ownership structure plays an important role in the amount of CSR expenditure.
Managers tend to maximize their own benefits according to agency theory. When managers have greater ownership, they tend to be more short-sighted and are less inclined to engage in CSR Wang et al. Managerial ownership is measured as the number of shares held by management divided by the total shares in issue. Different types of shareholder ownership reflect different investor preferences. Institutional investors pay more attention to the sustainability and long-term prospects of business than other types of shareholders Oh et al.
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CSR strategies can enhance the competitiveness of firms, build better government and community relationships and increase the economic value of firms. Thus, institutional investors can promote firms to engage in CSR. Institutional ownership is measured as the number of shares held by institutional investors divided by the total shares in issue. Firm age is highly correlated with CSR engagement Harjoto and Jo , so we control this variable in the model.
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Firm age is equal to the difference of fiscal year t minus the year the firm was established. Larger firms are more capable of engaging in environmental protection activities, employment benefits, etc. Size is measured as the natural logarithm of the book value of total assets. According to slack resource theory, firms in relatively weak financial condition are less likely to invest in corporate social responsibility than firms with strong financial performance Waddock and Graves ROA is equal to net income divided by total assets.
Leverage may increase business operating risk and interest burdens. When firms have high-interest payments, their ability to invest in CSR is limited. Thus we predict that highly leveraged firms are less likely to perform well in CSR. Leverage is measured as the book value of total debts divided by the book value of total assets. Moreover, we add industry dummies and year dummies to control for the industrial fixed effect and dynamic changes in the macroeconomic environment. The definition of all main variables is presented in the Appendix A.
Panel A is descriptive statistics for CSR. Table 1 Panel B shows the descriptive statistics of returnee manager variables. On average, at least Table 1 Panel C provides summary statistics of control variables. Managerial ownership of 0. These firm characteristics are similar to those reported in previous studies. The results also show that all the correlations between independent variables are relatively low. To further test the potential of multicollinearity, we compute the variance inflation factor VIF for dependent variables.
The maximum value is 1. Therefore, we think that multicollinearity may not be a significant issue in our study. These models are derived from two measures of CSR. The coefficients of the control variables are generally consistent with prior literature e. Board independence is positively significant, which shows that independent directors play a positive role in CSR performance. The coefficient of Power balance is significantly negative, showing that the willingness to practice CSR is lower when ownership concentration is higher.
We conduct a series of additional tests to ensure the robustness of our results, including propensity score matching, Heckman two-stage sample selection method, alternative measure of CSR, and alternative definition of returnee managers. The hypothesis to be tested is that CSR is a function of managerial foreign experience. However, the results will be difficult to interpret when there is an endogeneity problem. For example, it might be possible that firms with better CSR performance are more attractive to returnee managers.
We address the endogeneity problem by adopting propensity score matching PSM. The primary advantage of using the PSM method is that we can compare firms with returnee managers to a control sample of observations with similar observable dimensions but without returnee managers. In this way, we can clearly attribute any observed effects to the hiring of returnee managers itself. We identify treatment and control firms based on whether the firm hires returnee managers or not. To make our control firms comparable to the treatment firms, we establish a propensity-score-matched benchmark sample that has the same characteristics as the treatment sample.
We construct this benchmark sample by matching each treatment firm to one control firm using the PSM approach. Specifically, we first estimate a Probit model to estimate the propensity of hiring returnee managers. Model 2 represents the specification of the Probit model. In agreement with previous literature e. We compare firms with returnee managers treatment group to a sample of control firms without returnee managers control group matched with the propensity to hire returnee managers. For each firm in the treatment group, we select one firm in the control group with the closest propensity score, and both these firms constitute the propensity-score matched control sample.
PSM should limit the maximum distance between propensity scores with 3. Finally, there are pairs of observations successfully matched. We merged them with the full sample and get observations as our PSM sample. The results show that the differences between the treatment group and control group are small across all variables. Thus, our propensity score matching is highly successful.
We adopt the Heckman two-stage sample selection method as a robustness check to control the potential self-selection bias Heckman Inverse Mills Ratio IMR is generated in the first stage and included in the second-step model to control for potential self-selection bias.
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In order to ensure that our results are not driven by the way we measure CSR, we use alternative ways to construct the CSR measure. Following Quan et al. All of these measures yield similar results. The measure of returnee managers is also important in our research.
In order to ensure the authenticity and validity of managerial foreign experience, we exclude managers with only Hong Kong, Macau, and Taiwan experience since these places have very similar geographical and cultural values as Chinese mainland. The untabulated results suggest that managerial foreign experience still has a significantly effect on CSR.
Footnote 7. To summarize, we conclude that returnee managers have a positive effect on CSR after a series of robustness checks. Compared with managers with only foreign work experience, managers with foreign study experience have obtained more in depth and extended CSR education in foreign countries, and have a better sense of CSR. They are more capable of implementing advanced CSR concepts and corporate values at their firms. Thus, we predict that managers with foreign study experience have a greater influence on CSR than managers with foreign work experience.
We test the foreign study experience and work experience by examining the following model:. Returnee study is a dummy variable which equals 1 if firm i has at least one manager with foreign work experience, otherwise it equals 0. Different country origins may affect the relationship between managerial foreign experience and CSR performance. Managers who have obtained experience in developed economies may bring the advanced value of CSR and promote CSR performance in emerging economies such as China.
However, this logic may not hold when managers obtained their foreign experience in an emerging economy. From the descriptive statistics in Section 4. This is consistent with the phenomena in China whereby young people are eager to go to advanced economies to pursue better education and working opportunities.
To further illustrate the country effect on CSR performance, we employ model 4 to test whether returnee managers from advance economies have a stronger effect on CSR performance. The result further implies that only when managers had experience in developed economies can they bring advanced CSR values and promote CSR performance in China.
Asymmetric information theory suggests that one party has more or better information than the other during economic transactions. People in a position of information superiority can benefit from the market by communicating reliable information to the party with an information disadvantage. CSR is a wise choice that is both self-serving and altruistic Walsh and Beatty CSR itself is not a resource, but can convey positive signals to stakeholders, establish a good corporate image, and gain trust from stakeholders Chahal and Sharma ; Peloza ; Fernandez-Feijoo et al.
Previous studies demonstrate that developing a corporate reputation for being socially responsible is part of a strategic plan in managing stakeholder relationships Roberts As well, managers can use CSR to achieve their social, political and career goals Friedman Returnee managers are regarded as high-level talents since they have a global vision and good communication skills, and they are still scarce in the Chinese human resources market at this stage.
These talents are much in demand of enterprises hoping to achieve and sustain competitive advantages in the international market. These individuals have devoted considerable funds, time and effort to support their study and work experience. Their society, as well as the individuals themselves, have high expectations and stringent requirements. Therefore, due to the social reputation mechanism and the consideration of personal career development, returnee managers are more willing to cultivate trust and support from stakeholders through better CSR performance.
Thus, from the perspective of information asymmetry, we predict that the impact of managerial foreign experience is more pronounced when companies face greater information asymmetry. We adopt the modified Jones model Dechow et al. Then we use the firm-specific parameters to estimate the nondiscretionary accruals in the event year:.
Discretionary accruals DA is the difference between total accruals and nondiscretionary accruals. The larger DA represents more earnings management, and thus larger information asymmetry. To test the association between managerial foreign experience and CSR in different degrees of information asymmetries, we divided our sample into two groups. There might be an alternative explanation as to why returnee managers would like to invest in CSR.
To examine this explanation, we further test whether CSR could reduce information asymmetry by testing whether CSR improves firm value. We employ model 7 to test the impact of CSR on firm value. The main dependent variable is CSR. Corporate social responsibility has attracted worldwide attention since the s. The determinants of managerial background on CSR performance have not been fully explored. Our study investigates the impact of returnee managers on CSR using hand collected managerial foreign background information data for the period — Our empirical evidence shows that returnee managers have a positive effect on CSR, and that this effect only holds when managers obtained experience in advanced economies.
Our results are robust after using the propensity score matching procedure, Heckman two-stage sample selection method, alternative measure of CSR, and alternative definition of returnee managers. Further tests show that compared with managerial foreign work experience, managerial foreign study experience has a greater impact on CSR. In addition, when firms face greater information asymmetry, returnee managers are more willing to use CSR performance to send signals to stakeholders. Our paper makes several contributions. A recent strand of managerial characteristic literature focuses on the role of managerial foreign experience.
Our findings on the positive relations between returnee managers and CSR performance fit into the extant literature on the role of returnee talents. We further test the difference between managerial foreign studying experience and working experience on CSR, which enriches the literature. In addition, we extend the research on upper echelons and the determinants of CSR.
Previous CSR literature pays much attention to the institutional and organizational level, and they merely link individual executive traits with CSR performance. This is one of the few studies to examine the role of returnee managers on CSR performance.
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This study also has important implications for the government. Starting from the s, the Chinese Central Government and provinces promulgated a series of policies to attract talents with foreign study or work experience. Our study provides empirical evidence that returnee managers promote corporate social responsibility performance. Returnees serve as messengers to transmit better management and corporate practices to enterprises in emerging markets. In this regard, we believe that this study adds interesting and important information to the implementation effect of these policies.
Since , Hexun. According to our hand-collected managerial foreign experience data, the most attractive countries for Chinese talents are the United States, the United Kingdom, Japan, Canada, and Australia. Most are developed countries with advanced education systems and economic performance.
Since the s, provincial governments in China began to adopt policies to attract talents with foreign experience back to China, hoping to foster entrepreneurial activity and support the economy. Henan and Anhui provinces were the first to adopt a talent policy and other provinces followed suit from The first CSR report in China was disclosed in Then the number of CSR reports increased from in to in In , companies However, the disclosure rate is still low. Aguinis, H. Journal of Management, 38 4 , — Barnea, A. Corporate Social Responsibility as a Conflict between Shareholders.
Journal of Business Ethics, 97 1 , 71— Campbell, J. Academy of Management Review, 32 3 , — Chahal, H. Journal of Services Research, 6 1 , — Dhaliwal, S. Social Science Electronic Publishing, 86 1 , 59— Accounting Review, 87 3 , — Davis, K. Academy of Management Journal, 16 2 , — Dechow, P. Detecting Earnings Management.
Accounting Review, 70 2 , — Fernandez-Feijoo, B. Journal of Business Ethics, 1 , 53— Friedman, M. New York Times, 13 , — Ghoul, S. Giannetti, M. The Journal of Finance, 70 4 , — Goss, A. Greening, D. Academy of Management Journal, 37 3 , — Hambrick, D. Academy of Management Review, 9 2 , — Journal of Accounting and Public Policy, 24 5 : Harjoto, M.
Journal of Business Ethics, 1 , 45— Before her PhD. Author Shuo Wang. See details. See all 2 brand new listings.
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