Growing up under Mao and Deng : On the ideological determinants of corporate policies

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dc.contributor Bank of Finland Hao, Liang Rong, Wang Haikun, Zhu 2020-08-27T09:14:56Z 2020-08-27T09:14:56Z 2020
dc.identifier.isbn 978-952-323-345-4
dc.identifier.issn 1456-5889
dc.description.abstract Economic activities have always been organized around certain ideologies, yet little is known about how ideology shapes corporate behavior and how it is different from other political forces. We investigate the impact of politicians’ ideology on corporate policies by exploring a unique setting of ideological change in China from Mao’s ideology to Deng’s around 1978. Using textual analysis based on keywords in People’s Daily, we find a discontinuity in ideological exposure among people who later became city mayors. Those who were at least 18 years old in 1978 and had joined the Chinese Communist Party (CCP) are more likely to have adopted Mao’s ideology, and those who did not join by 1978, due to age limit, but joined soon thereafter were more likely to have adopted Deng’s ideology. This ideological difference has had an enduring effect on contemporary firm and city policies. Firms in cities governed by mayors with Mao’s ideology have made more social contributions, lowered within-firm pay inequality, and pursued less internationalization than those with Deng’s. These effects are stronger in firms with political connections, less state ownership, and more government subsidies as well as in regions that are more market-oriented and not “revolutionary bases.” Our results are robust to OLS regressions with various pair fixed effects besides regression discontinuity. We further find that corporate policies promoted by Mao’s ideology are associated with slower firm growth but greater stakeholder engagement.
dc.description.tableofcontents Abstract .... 4 1 Introduction .... 5 2 Conceptual framework and hypotheses development .... 10 2.1 Institutional transition and the economic thoughts of Mao vs. Deng .... 10 2.2 Hypothesis development .... 12 3 Data and methodology .... 15 3.1 Data .... 15 3.2 Empirical methodology .... 19 4 Results .... 23 4.1 The impact of ideology on firm policies .... 3 4.2 Evidence from the textual analysis .... 28 4.3 Economic mechanisms and cross-regional variations .... 30 4.4 Ideology and firm performance .... 37 4.5 City-level results .... 41 4.6 Additional robustness tests .... 42 5 Discussions and conclusions .... 45 References .... 47 Appendix A Variables definition .... 51 Appendix B Distribution of Mao’s and Deng’s ideologies across Chinese cities .... 53 Appendix C The indoctrination process on CCP members .... 4 Appendix D Graphical illustration of McCrary’s density test (2008) .... 55 Appendix E Controlling for economic zone-year pair and mayor native place-firm location pair fixed effects .... 56
dc.format.extent 57
dc.language.iso ENG
dc.relation.ispartofseries BOFIT Discussion Papers
dc.subject Bofit-kokoelma
dc.subject Kiina
dc.subject.other political ideology
dc.subject.other corporate policy
dc.subject.other regression discontinuity
dc.subject.other China
dc.title Growing up under Mao and Deng : On the ideological determinants of corporate policies
dc.type Paper
dc.identifier.urn URN:NBN:fi:bof-202008272299
dc.subject.jel G30
dc.subject.jel M14
dc.subject.jel P16 BOFIT Discussion Papers
dc.series.year 2020
dc.series.number 20/2020
dc.series.sortingnumber 0020 27.8.2020
dc.subject.yso politiikka
dc.subject.yso ideologiat
dc.subject.yso vaikutukset
dc.subject.yso yritykset
dc.contributor.orgunit Institute for Economies in Transition (BOFIT)
dc.type.okm D4

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