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Hypothesis 3a: Foreign ownership is positively associated with the probability of disclosing CSR information.

Hypothesis 3b: Foreign ownership is positively associated with the quality of CSR report.

Corporate Ownership Corporate ownership relates to shares held by firms. Firms do invest in other corporations for not only financial returns but for strategic reasons such as prospective mergers and branding (Dam & Scholtens, 2012; Hillier, Grinblatt & Titman, 2008). If financial benefits are the major motive in corporate portfolio investment, firms are less likely to invest in other companies that are substantially involved in CSR because CSR in their eyes is a cost and has limited benefits in the short-term. If the strategic objective dominates, for example, branding and reputation management, firms are more likely to invest in other corporations (Becker-Oslen, Cudmore & Hill, 2006; Klein & Dawar, 2004). By acquiring part and whole of another firm with a good reputation, the investor expects the good reputation improve its own reputation (DelgadoGarcía, de Quevedo-Puente & de la Fuente-Sabaté, 2010; Dam & Scholtens, 2012). These strategic objectives are well documented in the previous studies (see Hendry & Kiel, 2004; Knapp, Dalziel & Lewis, 2011; Schmidt & Brauer, 2006). On the basis of these studies, we assume that the strategic ownership

motives in most cases dominate the financial motives. Therefore, we hypothesize:

Hypothesis 4a: Corporate ownership is positively associated with the probability of disclosing CSR information.

Hypothesis 4b: Corporate ownership is positively associated with the quality of CSR report.


To investigate the impact of ownership structure on CSR of firms, we construct the sample from two sources. The firm-specific accounting and ownership data are extracted from China Stock Market and GCBF ♦ Vol. 11 ♦ No. 1 ♦ 2016 ♦ ISSN 1941-9589 ONLINE & ISSN 2168-0612 USB Flash Drive 187 Global Conference on Business and Finance Proceedings ♦ Volume 11 ♦ Number 1 Accounting Research (CSMAR) database. After eliminating firms under special treatment (ST) (ST means special treatment. The Department of Security Administration will afford special treatment if a company is encountering a financial problem or crisis, for example; if the net profit in the last two financial years has been negative) or with missing observations, our sample comprises of 1872 listed Chinese firms with Ashares traded at the end of 2010. To identify firms that disclosed CSR information we use the 2011 White Paper on Chinese Firms’ Corporate Social Responsibility published by the Research Centre for Corporate Social Responsibility Chinese Academy of Social Sciences (CASS-CSR) (2011). CASS-CSR aims to encourage Chinese firms’ CSR disclosure and to improve the quality of CSR reports. For fiscal year 2010 CASS-CSR documented 523 CSR reports released by Chinese listed firms. After removing firms only listed overseas stock exchanges, we have 491 firms with CSR report, amounting to 26.23% of firms listed in domestic stock exchanges in China.

Multivariate Analysis To examine the relationship between firm ownership structure and the likelihood and quality of CSR

disclosure, we run Probit and Tobit regressions using the following models, respectively:

Pr( ) = 0 + 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 10 + � , + (1) = 0 + 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 10 + � , + (2) where dis is a dummy variable for CSR disclosure, score is a measure of the quality of CSR disclosure, SOE is a dummy variable for the nature of the controlling shareholder, Institution is the proportion of shares held by domestic financial institutions; Foreign is the proportion of shares held by Qualified Foreign Institutional Investors (QFIIs); Corporate is the proportion of shares held by Chinese listed firms; Total Asset is the log form of total assets; Return on assets (ROA) is the net profits divided by total assets;

Leverage is the ratio of total liabilities to total assets; Top 10 is the proportion of shares held by the largest 10 shareholders; Industry is a range of dummy variables.


CSR Dummy and Score: CSR dummy and score variables are based on the scores assigned by CASS-CSR to CSR reports using CASS-CSR 2.0 guideline. If the firm issued a CSR report in 2010, then CSR dummy equals 1, and 0 otherwise. If the firm issued a CSR report, then CSR score variable equals the numerical

score (ranging from 0 to 100) assigned to the CSR report by CASS-CSR on the basis of six indicators:

completeness (25%), substantiality (30%), balance (10%), comparability (10%), readability (20%), and creativity (5%), and 0 otherwise.

Ownership Structure: We categorize ownership structure into state ownership, institutional ownership, foreign ownership and corporate ownership. The institutional background of Chinese listed firms leads to a high proportion of firms being controlled by government or government agencies. Following Chen, Firth, Xin and Xu (2009) we categorize Chinese firms according to the type of controlling shareholder instead of the type of share that followed the legal classification of shares. State ownership is measured by SOE dummy, which is based on the nature of the controlling shareholder. The ultimate controlling shareholder for each firm is identified by studying the equity control chain. If the ultimate controlling shareholder is government, then SOE equals 1, and 0 otherwise. Institutional ownership is measured by the proportion of shares held by domestic financial institutions. Furthermore, we distinguish between seven types of financial institution: (1) mutual funds, (2) pension funds, (3) insurance companies, (4) finance companies, (5)

–  –  –

security firms, (6) banks and (7) investment trusts. Foreign ownership is measured by the proportion of Ashares held by foreign institutions. Since 2003, China has allowed Qualified Foreign Institutional Investors (QFIIs) to buy domestic A-shares under a quota system. They are exclusively large internationally renowned funds and investment banks (Huang & Zhu, 2015) because QFIIs have been subject to stringent regulations. Corporate ownership is measured by the proportion of shares held by Chinese listed companies.

Control Variables: We include several control variables to control industry and firm characteristics. Firm size is documented to be positively related to the level and quality of CSR disclosure (Stanwick & Stanwick, 1998; Orlitzky, 2001). This may occur because larger firms have greater visibility (Metcalf, 1980) and attract more attention from various stakeholder groups to whom they need to respond more attentively (Waddock & Graves, 1997). We use the logarithm of the total assets at the end of 2010 to measure firm size. Prior research also indicates a positive relationship between firm’s financial performance and CSR (Orlitzky, 2001; Scholtens, 2008; Li et al., 2013; Waddock & Graves, 1997). More profitable firms have more organizational slack, thus are more likely to invest in CSR (Waddock & Graves, 1997). Firm’s financial performance is measured by the return on asset (ROA) of 2010.

Leverage is found to have a positive relationship with CSR by some researchers (Roberts, 1992) but a negative or no relationship by others (Branco & Rodrigues, 2008; Cormier et al., 2005; Reverte, 2009).

Leverage ratio measures the influence of creditor power (Roberts, 1992). Creditors could be supportive of CSR out of the concern for firm’s irresponsible risk taking. Alternatively, they could be indifferent or even against CSR because they have private access to management information. The slack-resource theory (Waddock & Grave, 1997) also predicts a negative relationship between leverage ratio and CSR because firms with a high level of debt focus more on short-term goals such as profit maximization instead of longterm goals such as CSR engagement. We use the ratio of total liabilities to total assets at the end of 2010 to measure leverage.

Previous research suggests CSR is negatively related to ownership concentration and positively related to ownership dispersion (Cormier et al., 2005; Reverte, 2009; Li et al., 2013). Dispersed corporate ownership brings broader demand from various stakeholders including those concerned with CSR (Keim, 1978;

Ullmann, 1985). Furthermore, the theory of type II agency problem argues that the largest shareholder may expropriate minority shareholders, impairing stakeholders’ interest and declining CSR. More dispersed corporate ownership may mitigate the extent of type II agency problem and lead to better CSR engagement (Johnson & Greening, 1999; See, 2009). However, using Chinese data, Li and Zhang (2010) found a positive relationship between dispersion and CSR only among non-SOE firms but a negative relationship among SOE firms. This may be because the state has incentives to divert wealth to obtain social stability (Bai et al., 2006), which helps to improve CSR. Ownership concentration is measured by the proportion of shares held by the largest ten shareholders at the end of 2010. Finally we include industry dummies to control for industry effects, which have been found by many researchers to be important in explaining CSR (Patten, 1991; Gray et al., 1995; Cormier et al., 2005). Eighteen industry dummies are created on the basis of the 2012 industry codes of the China Securities Regulatory Commission.


This Section Presents the Results of the Study Descriptive Statistics Table 1 presents the descriptive statistics of ownership variables and control variables and compares the differences between the characteristics of CSR sample firms and non-CSR sample firms. The results in panel A indicate that half of the firms in the whole sample are ultimately controlled by the state. The figure is higher for the CSR sample at 68.64% and lower for the non-CSR sample at 44.17%. Overall, institutional GCBF ♦ Vol. 11 ♦ No. 1 ♦ 2016 ♦ ISSN 1941-9589 ONLINE & ISSN 2168-0612 USB Flash Drive 189 Global Conference on Business and Finance Proceedings ♦ Volume 11 ♦ Number 1 investors hold 5.09% of all shares, among which mutual funds’ holding is the largest at 3.27%. The holding of foreign investors is low at 0.16%. The holding of listed firms is 1.85%, making them the third biggest group of shareholders after the state and mutual funds. Among the firms with CSR reports the average score is 25.73. Considering the range of score is between 0 and 100, the average score is low and the quality of CSR reports is far from good. The t test statistics suggest that mutual funds, foreign investors and corporate investors hold significantly more shares of firms with CSR reports than those without them. In line with the prior literature, the results in Panel B suggest that CSR firms are larger and more profitable than non-CSR firms. However, contrary to the findings like Li et al. (2013), CSR firms tend to have more concentrated ownership structure and higher debt-to-asset ratio.

Table 1: Descriptive Statistics

–  –  –


Table 2 presents the regression results. Model 1 is the Probit regression of the effect of state, aggregate domestic financial institutional, foreign and corporate ownership on the likelihood of CSR disclosure.

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