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Ethnic Diversity, Trust and Corporate Social Responsibility: The Moderating Effects of Marketization and Language

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Abstract

While the effect of culture on finance and management has been well documented in the literature, it is unclear whether and by which channel(s) ethnic diversity affects corporate social responsibility (CSR). Integrating social identity theory and neo-institutional theory, we investigate the ethnic diversity–CSR relation and explore potential mechanisms and boundary conditions. Based on the distribution of ethnic groups across different regions in China, We find that ethnic diversity negatively affects firms’ CSR performance. We document that social trust mediates the negative ethnic diversity–CSR relationship, and linguistic diversity strengthens and marketization mitigates this relation. The results are robust for potential endogeneity and alternative measures of ethnic diversity and CSR performance. Our study highlights the impact of ethnic diversity on corporate behaviors, and provides practical and ethical implications on CSR promotion.

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Notes

  1. As a robustness test, we winsorize the data at 1% and 2%, and find these results are qualitatively the same.

  2. Using the intermarriage rate in 2000 as an instrumental variable is exogenous to ethnic diversity for our data period from 2008 to 2013, while the intermarriage rate in 2010 might be correlated with data samples. As a robustness check, we collected the data of intermarriage rates in 2010 as an instrumental variable and ran a robustness test. The results are qualitatively the same as those of the intermarriage rate for 2000.

  3. As a robustness check, we remove observations from 2008 from the sample since these data might bias the results, considering the surge in social concerns after the Wenchuan earthquake which occurred on May 12, 2008. We rerun the regression and the results are qualitatively the same.

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Acknowledgements

We thank Assaad El Akremi (the editor), associate editor, two anonymous referees, Chen Lin, Shasha Liu, Ling Zhu, and seminar participants at Jinan University, Wuhan University, Zhongnan University of Economics and Law for helpful suggestions. We acknowledge the financial support from the Major Project of National Social Science Foundation of China (21ZDA010) and the National Natural Science Foundation of China (71991473, 71802061).

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  1. School of Management, Guangzhou University, Guangzhou, China

    Gaowen Kong

  2. School of Economics, Huazhong University of Science and Technology, Wuhan, China

    T. Dongmin Kong & Ni Qin

  3. Asper School of Business, University of Manitoba, Winnipeg, Canada

    Li Yu

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Appendix: Variable Definitions

Appendix: Variable Definitions

Variable

Definition

MktValue

Logarithm of total market value

Age

Number of years for which a firm has been established

Leverage

Ratio of total liabilities to total assets

ROE

Ratio of net profit to average shareholder’s equity

EPS

Earnings per share

SOE

Ownership property, which equals 1 for state-owned enterprise, and 0 otherwise

Donation

Logarithm of corporate donation amount

GDP

Percentage of annual growth in gross domestic product (GDP) for each province

Wage

Percentage of annual growth in average wages of employees for each province

Population

Logarithm of population for each province

GovCSR

Ratio of government expenditure on environmental protection to GDP for each province

CPI

Consumer price inflation for each province

TobinQ

Ratio of firm’s market value to its replacement cost of assets

Herf_10

Herfindahl index of shareholding ratio of top 10 shareholders

instHold

Shareholding ratio of institutional investors

Duality

Equals 1 if a firm’s CEO occupies the chair position of the board of directors, and 0 otherwise

Political

Equals 1 if a firm has a politically connected chairman/CEO, and 0 otherwise

Adv/Assets

Ratio of advertising expenditure to total assets

Monopolistic

Equals 1 if a firm belongs to monopolistic industry, and 0 otherwise

Foreign

Shareholding ratio of foreign investors

StockEx

Equals 1 if a firm is listed on Shenzhen stock exchange, and 0 otherwise

Pollution

Equals 1 if a firm belongs to polluting industry, and 0 otherwise

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Kong, G., Kong, T.D., Qin, N. et al. Ethnic Diversity, Trust and Corporate Social Responsibility: The Moderating Effects of Marketization and Language. J Bus Ethics 187, 449–471 (2023). https://doi.org/10.1007/s10551-022-05236-5

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