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Military top executives and corporate philanthropy: Evidence from China

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Abstract

This study, conducted in the context of China, investigates how the military experience of top executives influences their corporate philanthropy. Using a data set of 12,437 firm-year observations from China’s A-share firms listed on the Shanghai and Shenzhen stock exchanges between 2004 and 2013, we found that firms run by military top executives significantly donate less than those led by non-military top executives. Moreover, the reduction effect of military experience on corporate philanthropy is found to be more pronounced for firms located in regions with less developed markets, especially when firms’ chairmen have military background. This may be because military top executives are reluctant to illegitimately use corporate philanthropy due to a strong sense of ethics gained from their military service experience. These results are robust after adopting the propensity score matching (PSM) method to tackle the potential sample selection bias. Our findings provide a new interpretation of military experience and have important implications for understanding corporate philanthropy in China and in emerging markets in general.

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Notes

  1. On May 5th, 2008, soon after Vanke’s announcement of CNY 2 million donation, Wang Shi responded to public criticism on his blog (http://blog.sina.com.cn/s/blog_47233d0f01009b8i.html).

  2. The information (Notice about preferential policies supporting self-employment of retired solders in cities and towns and Regulation on compensation and preferential treatment for military servicemen) is published on http://www.gov.cn/gongbao/content/2004/content_63150.htm; http://www.mca.gov.cn/article/zwgk/fvfg/yfaz/200709/20070900001746.shtml.

  3. Our overall sample consists of 12,437 firm-year observations and the percentage of firms managed by both military chairman and CEO is about .27%. To deal with the potential different effect of dual military experience, we try to redefine Military Executive and find similar results (not reported here), where Military Executive takes the value of 2 if a firm is managed by both military chairman and CEO, takes the value of 1 if a firm is run by only one military executive, and zero otherwise.

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Acknowledgment

We acknowledge financial support from the Chinese National Science Funds (Grant No. 71202061 and 71572160), Program for New Century Excellent Talents in University of Fujian Province (2015), and Program for Cultivating Outstanding Young Research Talents in University of Fujian Province (2015). We greatly thank for valuable comments and suggestions from two anonymous reviewers, as well as Dong Lu, Wei Zhou, Xin Wang, and the participants of our presentation-sessions at the Southwestern University of Finance and Economics and at the 2016 AOM annual meeting.

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  1. School of Management, Xiamen University, No. 422, Siming South Road, Xiamen, Fujian, 361005, People’s Republic of China

    Jin-hui Luo, Yuangao Xiang & Ruichao Zhu

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  1. Jin-hui Luo
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  2. Yuangao Xiang
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Correspondence to Jin-hui Luo.

Appendix

Appendix

ᅟᅟ

Variable

Definitions

Donation1

The ratio of the amount of donation divided by operating revenue, then times 100.

Donation2

The ratio of the amount of donation divided by total assets, then times 100.

Military Executive

An indicator variable that equals one if the chairman or CEO of a company has military background, and zero otherwise.

Military Chairman

An indicator variable that equals one if the chairman of a company has military background, and zero otherwise.

Military CEO

An indicator variable that equals one if the CEO of a company has military background, and zero otherwise.

Political Connection

An indicator variable that takes the value of one if the Chairman/CEO of a firm is or was a government official, delegate of the people’s congress, or member of the political consultative conferences, and zero otherwise

Firm Size

The natural logarithm of the total assets.

Leverage

The ratio of total liabilities divided by total assets.

Return on Equity

The ratio of net profits divided by net assets.

Cash Ratio

The ratio of cash from operation divided by operating revenue.

Growth Rate

The growth rate of operating revenue from year t−1 to t

Listing age

The natural logarithm of [listing years + 1]

Top1

The share percentage of the largest shareholder.

Managerial ownership

The ratio of managerial stockholding.

Duality

An indicator variable that equals one if the CEO and the chairman of the board are not the same person, and zero otherwise.

SOE

State Owned Enterprise. An indicator variable that takes the value of one when a company’s ultimate controlling shareholder is government, and zero otherwise

Marketization Index

Marketization Index from Fan et al. (2011) which measures the development of the intermediary agencies and legal enforcement in China.

Loan

The ratio of the sum of long and short-term bank loans divided by total assets.

Interest coverage

The ratio of the sum of net profit, income tax and interest expense divided by interest expense.

Fixed Assets

The ratio of fixed assets divided by total assets

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Luo, Jh., Xiang, Y. & Zhu, R. Military top executives and corporate philanthropy: Evidence from China. Asia Pac J Manag 34, 725–755 (2017). https://doi.org/10.1007/s10490-016-9499-3

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