Effect of Directors' Social Network Centrality on Corporate Charitable Donation

By Li, Wenqin; Xu, Guanghua et al. | Social Behavior and Personality: an international journal, January 1, 2019 | Go to article overview

Effect of Directors' Social Network Centrality on Corporate Charitable Donation


Li, Wenqin, Xu, Guanghua, Xing, Qiuhang, Lyu, Minghan, Social Behavior and Personality: an international journal


The term social network refers to a collection of actors and their relationships (e.g., friendship and communication; Kilduff & Tsai, 2003). According to Fracassi and Tate (2012), directors' social network in enterprises is one of the most common social networks, and the behaviors and systems of individual directors are embedded in the social network. Further, the behaviors of directors are impacted by the social network they are in (Granovetter, 1985). Directors who serve on the board of two or more companies at the same time are called connected directors (Macaulay, Richard, Peng, & Hasenhuttl, 2017). Among these directors there are formal or informal connected relationships that form a network.

There is an ongoing need to examine the association of corporate social responsibility with the leaders of the enterprise (Choi, Ullah, & Kwak, 2015). However, the focus of researchers in previous studies has been on how a network of connected directors influences corporate decisions and firm values (Larcker, So, & Wang, 2013). The question of how a network of connected directors influences corporate social performance is still largely an underexplored area (Macaulay et al., 2017). Shan, Gan, and Zheng (2008) suggested that philanthropy should attract more attention from society and scholars. Thus, in the current study we analyzed the effects of connected directors' social network centrality on the charitable donation of the enterprises, taking into account the properties of the enterprise and market competition. We expected that our study would contribute to a more accurate understanding of how directors' resources derived from their social network centrality impact organizational behavior in China.

Literature Review and Hypotheses

Directors' Social Network and Philanthropy

According to stakeholder theory, the purpose of a firm is to create as much value as possible for stakeholders (Freeman, 1979), including employees, investors, and communities (Kreng & Huang, 2011). Firms with effective management of stakeholder demands obtain some advantages over competitors (Macaulay et al., 2017). However, philanthropy does not mean altruism (Gautier & Pache, 2015). In the Chinese business context, philanthropy is a strategic behavior performed by companies in order to obtain financial and political resources from the government (Shan et al., 2008). The Chinese government hopes to ease pressure on its finances through the donations made to charities by enterprises and, thus, there are incentives (such as tax incentives) to encourage enterprises to donate.

According to political cost theory advanced by Jensen and Meckling (1976), larger firms face more government scrutiny than do smaller firms. The higher visibility of firms causes them to become targets of greater regulatory actions by government and vehicles for wealth transfer (Zimmerman, 1983). Thus, corporates with higher visibility incur higher political costs. As corporate philanthropy is not for the purpose of altruism and the level of donation is largely influenced by the relevant government regulations and concessions, donations become part of the total political cost borne by firms. Connected directors bring real or potential resources to an enterprise through their network of social relationships (Nahapiet & Ghoshal, 1998). The more connected the directors' network, the faster the corporate achieves acquisition and transmission of resources (Freeman, 1979), and the higher the visibility of the corporate. It is easier for the government to lobby those corporates with higher visibility for donations, because in China, due to taxation and business management relationships, there are business channels between government workers and business managers. Accordingly, we formed the following hypothesis:

Hypothesis 1: Chinese corporates whose directors have denser networks than others have will be more likely to donate to charity. …

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