1. Introduction
The traditional profit maximization goal of companies leads to a whole string of social problems, such as employee rights and interests, food safety and quality and environmental pollution, which impede the healthy pullulating of companies. This makes companies face increasing pressure from different stakeholders, forcing listed companies to integrate sustainable strategies in their operations. Since the 1920s, corporate social responsibility (CSR) has stolen more limelight from stakeholders. CSR requires companies to show solicitude for the interests of other stakeholders while pursuing economic interests and creating shareholder wealth. CSR is actually the top priority of modern enterprises (Menguc and Ozanne [
1]). Under the well-established Triple Bottom Line (TBL) accounting framework, companies are required to solve economic, ecological and social sustainability problems in varying degrees (Peloza and Shang [
2]). The stratospheric growth of CSR is not only a mandatory approach, but also a voluntary approach taken by companies for their own interests. CSR can enhance corporate reputation and improve corporate financial performance synchronously. CSR is increasingly becoming a worldwide phenomenon. In this regard, developed countries have launched campaigns and issued corresponding laws and regulations to promote the implementation of CSR. Moreover, international organizations have also issued SA8000, the United Nations Global Compact, ISO26000 and other standards. This indicates that the implementation of CSR has become the consensus of the international community. At present, CSR remains the focus of the world of business. In 2019, the chief executive officers of 181 top American companies jointly signed “The Declaration of Corporate Purpose”, which redefined the pursuit of the company’s operation to remodel a better society, instead of on the traditional profit maximization goal. In the same year, the “European Green Agreement” announced by European Commission also covers almost all areas and aims at adopting carbon neutral measures, such as reducing carbon emissions, restoring biodiversity and improving resource utilization to elevate the development of European Union.
With China’s remarkable economic growth, Chinese companies are occupying an increasingly significant position in the global market. People’s attention to CSR has gradually arrived to China, and China’s exploration of CSR has also correspondingly blossomed. China’s CSR practice started late, but in the past decade, it has been fully supported and developed. In 2006, the Shenzhen Stock Exchange (SZSE) issued the “Guidelines on Social Responsibility of Listed Companies” (More details about the “Guidelines on Social Responsibility of Listed Companies” can be retrieved from the website:
http://www.csrc.gov.cn/pub/shenzhen/xxfw/tzzsyd/ssgs/sszl/ssgsfz/200902/t20090226_95495.htm. Accessed 15 January 2020) to guide listed companies to actively perform their CSR. Subsequently, the “Guidelines on the Application of Internal control of Enterprises” (More details about the “Guidelines on the Application of Internal control of Enterprises” can be retrieved from the website:
http://www.csrc.gov.cn/pub/fujian/xxfw/fjssgsnk/201204/t20120411_208407.htm. Accessed 15 January 2020) and “China Corporate Law” (More details about the “China Corporate Law” can be retrieved from the website:
http://www.csrc.gov.cn/shanxidong/xxfw/tzzsyd/200511/t20051114_92273.htm. Accessed 15 January 2020) also precisely stipulate that companies are supposed to energetically fulfill their CSR. The 18th and 19th National Congress of the Communist Party of China also raised CSR to a strategic level. The “2018 China Corporate Social Responsibility Report” (More details about the “2018 China Corporate Social Responsibility Report” can be retrieved from the website:
http://www.xinhuanet.com/tech/2018-12/28/c_1123919630.htm. Accessed 15 January 2020) points out that, although the number and disclosure of China’s CSR reports are constantly elevating, the overall level of CSR is still low and in the primary stage. In addition, under many regulations and moral constraints, there have still been incidents of neglecting social responsibility in recent years, such as the “aromatic hydrocarbon” incident of infant milk powder, the “sweet element” incident of Jiugui Liquor, the “expired vaccine” incident in Jinhu, the “carbon nine leakage” incident in Fujian, the third phase of female employees’ rights and interests damage, etc. However, Sustainable development of enterprises and CSR are not separated and antagonistic, but coordinate and promote each other. They are unified in the development process of enterprises and society (Wang and Han [
3]; Qu et al. [
4]; Hristov et al. [
5]). The performance of CSR has increasingly proved to be the constraints of the long-term development of companies. Under the background of the “new normal” macro-economy, better CSR performance can provide leading advantages, innovative ways and resource bases for the sustainable development of enterprises, promote the improvement of enterprises’ sustainable development ability and carry out the sustainable development of the whole society (Song et al. [
6]). Therefore, how to improve CSR has gradually become the focus of scholars.
With the penetrating enforcement of the reform and opening-up policies and the expediting of the process of globalization, China’s capital market has been further opened. A mass of foreign investors is investing in Chinese companies. Foreign owners often hold shares in Chinese listed companies through different forms and motivations. Foreign ownership performs an increasingly significant role in corporate governance. Therefore, the CSR performance of companies with foreign ownership is a topic of interest. The increase of foreign ownership has opened up new potential channels for companies to fulfill their CSR. With the processive strengthening of global economic communications, the institutional distances among countries will also affect the flow of information and capital in different countries, thus affecting the strategic decision-making and value of companies. It is worth further exploring the role of institutional distances. With the rise of the concept of sustainable development investment, CSR has gradually become the focus of investors. Therefore, how to use foreign capital to achieve better implementation mechanism of CSR and how to carry out CSR activities according to the characteristics and attributes of foreign investors are of great significance to the sustainable development of enterprises and society (Wang and Lee [
7]).
At present, many scholars have demonstrated that the different ownership structures of companies have different impacts on the disclosure of CSR performance (Li [
8]; Sun, and Tao [
9]; Gloßner [
10]). With the increasing process of global integration, on the basis of the research pertaining to ownership structure and CSR, some scholars deeply study the influencing mechanisms of foreign investment on CSR, but the breadth and depth of the research have thus far been extremely lacking. Most of the existing research investigates the impact of foreign direct investment (FDI) on CSR from a macroscopic perspective (Lin and Lou [
11]; Huang and Chen [
12]; Sun et al. [
13]). Since then, scholars have explored the effect of foreign ownership on CSR from a microscopic perspective. Although the research methods and perspectives are multifarious, the basic conclusions are the same, that is, foreign ownership significantly promotes CSR performance (Wang et al. [
14]; Li et al. [
15]; Qin et al. [
16]).
Some scholars have found that institutional distance has significant correlations with foreign capital flows (Trąpczyński et al. [
17]; Liu and Xiao [
18]; Liu and Meng [
19]; Yang and Deng [
20]). However, there is no specific investigation on the moderating role of institutional distance in the impact of foreign ownership on CSR. In comparison to preceding studies, the primary contributions of this paper are presented as follows: First of all, from the perspective of foreign ownership, this paper dedicates itself to further investigating the determinants and mechanisms of CSR and enrich the existing research. Secondly, for the measurement of foreign ownership, the extant research is simply to use a dummy variable or qualified foreign institutional investors (QFII) as the proxy of foreign ownership, without specific discussion on the structure of foreign ownership. Using the extant literature for reference, this paper calculates the proportion of the different sources of foreign ownership in the top ten shareholders of A-share listed companies as the proxy of foreign ownership, enriching the existing research methods. Thirdly, many scholars have begun to inquire thoroughly upon the impact of institutional distance in the global economy. Nonetheless, there is no specific empirical study on the role of institutional distance in the relationship between foreign ownership and CSR. This paper constructs panel data models to investigate the moderating role of institutional distance on the impacts of foreign ownership on CSR. Moreover, this paper uses the Euclidean version of the Kogut and Singh [
21] distance measurement index (Shenkar [
22]) and weighted distance measurement method to calculate legal institutional distance and economic institutional distance. Finally, the empirical results and policy recommendations of this paper are of great practical significance. The conclusions can provide theoretical guidance for China to formulate relevant policies to manage the entry of foreign investment. This makes good sense for improving the CSR performance of companies with foreign ownership and promoting sustainable development.
The remainder of this paper is structured as follows:
Section 2 comprehensively reviewed the corresponding literature.
Section 3 presents the hypotheses.
Section 4 explains the definitions of variables and data sources and establishes empirical models.
Section 5 carries out empirical regressions and analyzes the empirical results.
Section 6 concludes and propounds some policy recommendations.
5. Empirical Results
5.1. Descriptive Statistical Analysis
Table 2 reports the descriptive statistics. The average value of CSR is 38.717 and its standard deviation is 12.332. The minimum value, median value and maximum value of CSR are 13.330, 36.078 and 89.003, respectively, indicating that the CSRs of different listed companies are quite different and the overall disclosure quality is low. FO has an average value of 0.051 and its maximum value is 0.886, revealing that the overall level of foreign ownership in China was relatively low over the sample period.
With regard to the moderating variables, the average LD is 2.178 with the maximum value of 8.315. The average ED is 2.402 with a maximum value of 8.916. The above shows that the institutional distance between the sample companies and the home countries of foreign ownership is relatively low, but there are great differences between different companies, indicating that the diversity and differentiation between the ownership structure and home countries of foreign ownership are relatively large.
With respect to control variables, the average GDP is 11.092, and the minimum value, median value and maximum value are 9.303, 11.065 and 19.981, respectively. The average Market is 8.207, and the minimum Market and maximum Market are −0.3 and 12.219, respectively, showing that China’s overall market-oriented development level is relatively high, but some remote areas still have serious problems of slow market-oriented process and unbalanced development. The average ROE is 0.081, manifesting that the business performance of sample enterprises fluctuates greatly. The average Lev is 0.482, in the range of 45–60%, documenting that the debt-paying ability of sample companies has a strong guarantee. The average Liq is 2.191, indicating that the liquidity of sample companies is good as a whole. The average Board is 2.2 with the minimum of 1.386 and maximum of 2.944. The average indep is 0.376, indicating that the average independent director ratio of sample companies is more than one third, fundamentally tallying with the provisions of CSRC. The average value of Dual is 0.166, which illustrates that 16.7% of the sample companies have the same chairman and CEO. Firs has an average value of 0.317, which indicates that China’s listed companies’ ownership are relatively concentrated. The average SOE is 0.621, manifesting that 62.1% of the sample companies are state-owned companies. The average TobinQ is 2.261, underscoring that the market value of enterprises is generally higher than their replacement cost. The average value PB is 0.835, specifically, demonstrating that the sample companies have a high rate of return.
5.2. Correlation Analysis
For the purpose of preliminarily verifying our hypotheses, this research conducted correlation analysis. The results of the Pearson correlation coefficients are presented in
Table 3. As it is shown, the correlation coefficients between CSR and FO, LD and ED are 0.226, 0.303 and 0.295 at the 1% significant level, respectively, which verifies the previous hypotheses preliminarily. As for control variables, GDP, Market, ROE, Lev, Board, Indep, Firs, SOE, PB, Size and Age present a positive and significant relationship with CSR. Liq, Dual and TobinQ are present negative and significant relationship with CSR.
Multicollinearity leads to inaccurate estimation of the model. First of all, the Pearson correlation coefficients of each variable in this paper are within 0.5, preliminarily demonstrating that there is no severe multicollinearity. In further multicollinearity diagnosis, the variance inflation factors (VIF) of model 1 to model 3 are less than 10. Specifically, the maximum VIF of the variables in model 1 to model 3 are 1.99, 2.10 and 1.99, respectively. The regression results of VIF test are shown in
Table A1. Consequently, from the results of the Pearson correlation coefficients and VIF diagnosis, we conclude that there is no multicollinearity.
5.3. Regression Analysis
In Column 1 of
Table 4, the regression results of model 1 are shown. The results show that the coefficient of FO is significant and positive (
p < 0.01), indicating that foreign investors propose higher requirements for CSR disclosure. Under the pressure of foreign owners and institutional environment, Chinese listed companies will significantly improve CSR disclosure quality in order to obtain legitimacy support and improve corporate reputation. Hypothesis 1 is validated.
Column 2 of
Table 4 reports the regression results of model 2. The coefficient of FO × LD represents the moderating role of legal institutional distance in the impact of foreign ownership on CSR. The interaction coefficient is significantly positive (
p < 0.01), elucidating that legal institutional distance promotes a positive role in the positive impact of foreign ownership on CSR disclosure quality. With the legal institutional distance between the home countries of foreign ownership and China’s listed companies increasing, foreign owners will exert greater pressure on China’s listed companies to promote the CSR performance, so as to mitigate the hazard of ownership infringement. According to the theory of institution escape, companies with foreign ownership exhibit greater inclination for adopting a global strategy and increase CSR disclosure quality correspondingly. As outlined above, legal institutional distance further improves and enhances the promotion effect of foreign ownership on CSR. Hypothesis 2 is verified.
Column 3 of
Table 4 reports the regression results of model 3. The coefficient of FO × ED represents the moderating role of economic institutional distance in the impact of foreign ownership on CSR. The interaction coefficient is significant and positive (
p < 0.01), documenting that economic institutional distance promotes the positive impact of foreign ownership on CSR. As the legal institutional distance between the home countries of foreign ownership and China increases, foreign owners strictly supervise CSR performance, aiming to improve the investment efficiency. Listed companies have a stronger willingness and ability to promote CSR and enhance the promotion effect of foreign ownership on CSR. Hypothesis 3 is verified.
5.4. Robust Tests
5.4.1. Propensity Score Matching
Accounting for self-selection bias, we adopted the propensity score matching model (PSM) to control for differences in company characteristics between companies with and without foreign ownership, thereby estimating the average treatment effect of foreign ownership on CSR to verify the robustness of the above conclusions.
First, we conducted an equilibrium test. The result of conducted equilibrium test elucidated that the pairwise differences of the control variables of the matched sample decreased in magnitude with respect to the unmatched sample and became statistically non-significant, thereby justifying the necessity and effectiveness of PSM.
Table A2 presents detailed results of the mean difference test for the pre-matched sample and post-matched sample.
Second, the results of the average treatment effect suggest that self-selection bias causes the estimation results of the ordinary least squares method to be seriously overestimated, and PSM can effectively mitigate this problem (See
Table A3). In addition, although the difference of CSR after propensity score matching becomes smaller, the T-value is 4.540 (
p < 0.01), indicating that foreign ownership has a positive impact on CSR.
Furthermore, the regression results of
Table 5 for the matched sample demonstrate that foreign ownership has a positive impact on CSR, and that legal institutional distance and economic institutional distance promote the positive impact of foreign ownership on CSR.
5.4.2. Two-Stage Least Squares Method
On the one hand, there may be a reverse causal relationship between foreign ownership and CSR. On the other hand, there may be the problem of omitted variables. Although the selection of control variables is able to mitigate the endogenous problem to some degree, the endogeneity caused by the factors that cannot be observed or measured cannot be alleviated by adding the control variables, which may make the regression results biased and inconsistent. In view of the potential endogenous issue in the models, this paper uses the instrumental variable to conduct the two-stage least squares method (2SLS) to estimate the empirical model to deal with the potential endogenous problems.
This paper uses the instrument variable of the industry average of foreign ownership (
InFO) for foreign ownership (FO).
Table A4 presents the arranged results of the instrumental variable validity test in the first stage of 2SLS. First, the results of underidentification test (
p = 0.000) indicate that the instrumental variable selected in this paper presents significant correlation with the endogenous variable (FO). Moreover, the F value of weak identification test is 226.753 and is far greater than the usual critical value of 10, showing that the instrumental variable has passed the weak identification test. As outlined above, the instrumental variable is effective, and the cross terms of instrumental variable and distance variable is also an effective instrumental variable.
Table 6 demonstrates the 2SLS results of the second stage. The results in Column 1 of
Table 6 manifest that the coefficient of FO is 41.427 and significant (
p < 0.01), documenting foreign ownership (FO) has a positive and significant impact on CSR. The results in Column 2 of
Table 6 demonstrate that the coefficient of FO × LD is 164.304 and significant at the 5% level, proving that legal institutional distance promotes the positive impact of foreign ownership on CSR. The results in Column 3 of
Table 6 demonstrate that the coefficient of FO × ED is 361.083(
p < 0.05), proving that economic institutional distance promotes the positive impact of foreign ownership on CSR.
5.4.3. Alternative Measures of Independent Variable and Moderating Variables
On the one hand, most of the foreign ownership of A-share listed companies in China comes from the same country or region. On the other hand, even though there are a number of home countries of foreign ownership, the proportion of large shareholdings is very great. In response to this situation, this paper employs the largest foreign shareholdings of China’s A share listed companies (
LarFO) as an alternative measure of foreign ownership (FO). Correspondingly, this paper replaces the previous weighted legal institutional distance and weighted economic institutional distance with the legal distance and economic institutional distance between the home country of the largest foreign shareholder and China, respectively. Then, this paper conduct regression analysis again with the alternative measures of independent variable and moderating variables. As reported in
Table 7, the conclusions are essentially unchanged and consistent with our previous hypotheses, illustrating that the conclusion of this paper is robust.
6. Conclusions and Policy Implications
6.1. Conclusions
With the acceleration of reform, opening-up and globalization, foreign ownership has a significant impact on CSR. Moreover, a plethora of empirical studies show that institutional distance and geographic distance also play an important role in international capital flows. This paper utilizes panel data of CSR disclosure quality of A-share listed companies in China for the period of 2009 to 2018 as a sample to examine the impacts of foreign ownership on CSR and the moderating role of legal institutional distance and economic institutional distance in the relationship between the foreign ownership and CSR.
The dominating conclusions are listed as follows: First, foreign ownership has a significant positive impact on CSR, which is in accordance with Hypothesis 1. Second, legal institutional distance promotes the positive impact of foreign ownership on CSR, which is in accordance with Hypothesis 2; Third, economic institutional distance promotes the positive impact of foreign ownership on CSR, which is in accordance with Hypothesis 3. Finally, the results of two stage least square (2SLS) and robust test of alternative measures are consistent with our prior conclusions, proving our conclusions are robust.
6.2. Policy Implications
Although CSR in China is increasingly prevailing as a whole, there is still persisting a great disparity in comparison to developed countries. With the phenomenon of foreign holding shares of listed companies becoming more and more common, how to use foreign capital to improve CSR disclosure quality has become a focal point. In accordance with the research conclusions, this paper advances the following feasible policy:
Firstly, the Chinese government should actively guide listed companies to improve their ownership structure and reasonably introduce foreign capital, further promoting companies to actively assume CSR to achieve sustainable development. In the reform of China’s securities market, the financial regulatory authorities should vigorously improve the legal and economic environment, improve the institution design and provide sufficient legal guarantee for the active and reasonable introduction of foreign capital. At the same time, in order to achieve the goal of sustainable development, enterprises must take the initiative to fulfill CSR and avoid the risk of CSR brought by foreign investment (Kang et al. [
37]; Lee et al. [
38]; Yan and Hu [
39]). In this way, China’s companies can further standardize the information disclosure quality, improve the CSR performance and finally promote the sound development of China’s economy.
Secondly, Chinese listed companies should make reasonable differential strategies and plans based on the institutional differences between the home countries of foreign ownership and China. Specifically, listed companies should coordinate the conflicts of interest between different foreign shareholders, make all-out efforts to meet the requirements of foreign owners, enhance mutual trust between foreign investors and fully protect the interests of foreign shareholders. Therefore, China’s listed enterprises ought to strengthen internal control and supervision to prevent the management from opportunistic behavior.
Finally, legal institutional distance and the economic institutional distance promote the positive impact of foreign ownership on CSR. Therefore, China’s listed enterprises should actively learn from the CSR strategy of developed economies. Chinese companies with foreign ownership should adopt more convenient ways of communication with foreign investors to improve information transparency and reduce information costs, aiming to further improve CSR performance.
6.3. Research Limitations and Prospect
For one thing, this paper extends the extant research pertaining to foreign ownership and CSR. For another thing, it is completely fundamental for revealing the motivation of companies with foreign ownership to fulfill CSR. However, this paper still has the following limitations: First, confined to the availability of data, the measure of foreign ownership only employs the total proportion of foreign ownership of the top ten shareholders. However, the shares of listed companies in China are relatively concentrated, and the proportion of the top ten shareholders accounts for the majority of the total shares. According to the data, except foreign ownership of the top ten shareholders, the shareholding proportion of other foreign shareholders is basically less than 0.5%. Therefore, we believe that the potential limitations of our data have little impact on the conclusions of the research. Second, the measures of legal institutional distance and economic institutional distance are not unified in the academia at present. This paper uses the Euclidean distance measurement method that has been widely used in recent years. Nevertheless, this kind of measurement may neglect some factors in the measurement of differences, leading to the measurement not being completely accurate. In the future, we should continue to perfect the distance measurement model. Finally, investigation on the impact path of foreign ownership on CSR is still not in-depth, which is a future research direction.