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Journal of Business Ethics

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02-01-2021 | Original Paper

Hometown Ties and Favoritism in Chinese Corporations: Evidence from CEO Dismissals and Corporate Social Responsibility

Authors: Hongjin Zhu, Yue Pan, Jiaping Qiu, Jinli Xiao

Published in: Journal of Business Ethics | Issue 2/2022

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Abstract

This paper provides a systematic analysis of how hometown ties, the most common and distinct bases for interpersonal ties to build upon in China, could influence corporate governance in Chinese corporations by focusing on its impact on CEO dismissals and corporate social responsibility. We find that hometown ties between CEOs and board chairs reduce the likelihood of CEO dismissals and that the negative relationship between firm performance and CEO dismissals is weaker for hometown-connected CEOs in locally administered state-owned enterprises, for inside CEOs, for firms located outside board chairs’ hometowns, and for firms operating in regions with low social trust. Moreover, we find consistent evidence that hometown ties affect Chinese firms’ engagement in corporate social responsibility. Our study highlights the important role of hometown ties in Chinese relationship-based corporate governance. It also advances a normative ethical assessment of hometown-based favoritism by highlighting its distinct dynamics and impacts on focal actors and the third parties in specific contexts of actions.

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Title: Hometown Ties and Favoritism in Chinese Corporations: Evidence from CEO Dismissals and Corporate Social Responsibility
Authors: Hongjin Zhu
Yue Pan
Jiaping Qiu
Jinli Xiao
Publication date: 02-01-2021
Publisher: Springer Netherlands
Published in: Journal of Business Ethics / Issue 2/2022
Print ISSN: 0167-4544
Electronic ISSN: 1573-0697
DOI: https://doi.org/10.1007/s10551-020-04711-1

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