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

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

Hao Liang, Rong Wang, Haikun Zhu

Series number :

Serial Number: 
642/2019

Date posted :

November 30 2019

Last revised :

November 30 2019
SSRN Share

Keywords

  • political ideology • 
  • Political Connection • 
  • corporate policy • 
  • China

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.

Authors

Dr.
Real name:
Research Member
Singapore Management University, Lee Kong Chian School of Business
Real name:
Rong Wang
Real name:
Haikun Zhu