Growing Up Under Mao and Deng: On the Ideological Determinants of Corporate Policies

78 Pages Posted: 5 Dec 2019 Last revised: 10 Dec 2019

See all articles by Hao Liang

Hao Liang

Singapore Management University - Lee Kong Chian School of Business; European Corporate Governance Institute (ECGI)

Rong Wang

Singapore Management University; Singapore Management University - Lee Kong Chian School of Business

Haikun Zhu

Erasmus University Rotterdam

Multiple version iconThere are 2 versions of this paper

Date Written: November 28, 2019

Abstract

Historically, economic activities have been organized around certain ideologies. We investigate the impact of politicians’ ideology on corporate policies by exploring a unique setting of ideological change—China from Mao to Deng around the 1978 economic reform—in a regression discontinuity framework. We find that the age discontinuity of politicians around 18 years old in 1978, who had already joined the Chinese Communist Party (CCP) or joined soon thereafter and later became municipal paramount leaders, has had a lasting effect on contemporary firm- and city-level policies. In particular, firms in cities with mayors that joined the CCP under the ideological regime of Mao have made more social contributions, lowered within-firm pay inequality, and engaged in less internationalization than those under Deng’s regime. These effects are stronger in firms with political connections, in non-state-owned enterprises, and in regions that are more market-oriented and not “revolutionary bases.” We find further evidence that ideology-induced corporate policy biases have some impact on firm performance and valuation.

Keywords: political ideology, political connection, corporate policy, China

JEL Classification: G30, M14, P16

Suggested Citation

Liang, Hao and Wang, Rong and Zhu, Haikun, Growing Up Under Mao and Deng: On the Ideological Determinants of Corporate Policies (November 28, 2019). European Corporate Governance Institute – Finance Working Paper No. 642/2019, Available at SSRN: https://ssrn.com/abstract=3494916 or http://dx.doi.org/10.2139/ssrn.3494916

Hao Liang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

HOME PAGE: http://business.smu.edu.sg/faculty/profile/130396/LIANG-Hao

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Rong Wang

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Haikun Zhu

Erasmus University Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

HOME PAGE: http://https://sites.google.com/site/zhuhaikun2018/home

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