Cultural Inclusivity and Corporate Social Responsibility in China

The study investigates whether regional cultural inclusivity, as an informal institution, influences firms’ corporate social responsibility (CSR) in China. Motivated by recurring CSR lapses (e.g., food safety scandals) and the recognized limits of formal institutions alone in shaping corporate behavior, the paper examines the role of geographic culture in corporate governance. Drawing on institutional economics, the authors posit that local culture can shape managerial values and decisions, potentially fostering prosocial behaviors within firms. China provides an ideal context due to its strong informal cultural influences and substantial regional cultural variation. The research asks if cultural inclusivity leads firms to prioritize stakeholder interests and whether this effect differs by firm characteristics (size, ownership, and board independence). It also explores mechanisms through which inclusivity operates, particularly via regional norms of gender equality and reduced power gaps, and addresses endogeneity using an instrumental variable related to geographic relief amplitude.

The literature identifies two main streams on CSR determinants: (1) firm-level factors and governance characteristics (e.g., size, financial condition, CEO traits, board composition and diversity, independent directors, specialized committees), which generally show that larger firms, diverse and independent boards, and certain executive attributes are associated with greater CSR; and (2) institutional environments, with most emphasis on formal institutions (laws, political systems, regulations) shaping CSR practices across countries. Building on institutional economics, recent work considers culture as an informal institution that can homogenize behaviors within regions. However, much prior cultural research is cross-country and prone to endogeneity, while within-country regional studies better identify micro mechanisms. A gap remains regarding how cultural inclusivity—beyond more commonly studied cultural dimensions (e.g., dialects, religion, Confucianism)—affects CSR. The authors develop hypotheses: H1, that local cultural inclusivity promotes firms’ CSR; H2, that cultural inclusivity enhances CSR by strengthening regional gender equality; and they further theorize that inclusivity suppresses the regional “power gap” concept, also fostering CSR.

Data comprise Chinese A-share listed firms from 2010–2019, excluding ST/PT, financial, and real estate firms, covering 2,118 firms and 10,140 firm-year observations across 30 provinces (excluding Hainan, Hong Kong, Macao, and Taiwan). The dependent variable is CSR from Hexun.com and its five sub-indices: shareholders (CSR_stock), employees (CSR_emp), consumers (CSR_cus), environment (CSR_env), and society (CSR_social). The key independent variable is a province-level cultural inclusivity index (CI) constructed by the authors; alternative proxies include Out_diet (the proportion of non-local cuisines in a province) and Art_group (number of regional arts performing groups). Firm-level controls include Size, Lev, ROA, BM, Attention, RET, Turnover, TOP_1, TOP_10, SOE, Boardsize, Indeboard, Sep, Lncom, and CO_CEO; regional controls include GDP_per, GDP_growth, Pop_growth, and Consume_per. All control variables enter with a one-year lag. Industry and year fixed effects are included, standard errors are two-way clustered at firm and year, and all variables are winsorized at 1%.

Baseline model: CSR_{i,p,t} = α + β CI_{p,t} + Controls_{i,p,t-1} + FE + ε. Endogeneity is addressed via two-stage least squares (2SLS) using regional relief amplitude (Re_am) as an exogenous instrumental variable for CI, motivated by terrain-induced historical isolation that impedes cultural diffusion and inclusivity. First stage: CI_{p,t} = α + b IV_{p,t} + r Controls_{i,p,t-1} + δ; second stage regresses CSR on fitted CI. Mechanism analysis uses 2SLS to test whether CI influences CSR through regional “gender equality” (Ge) and “power gap” (Pg) indices (Zhao et al., 2015). Heterogeneity analyses add interaction terms: CI×Scale (large firm dummy above median size), CI×SOE (state ownership), and CI×Inde (board independence above median). Robustness checks include substituting independent variables (Out_diet, Art_group) and dependent variables (CSRR—Hexun letter ranks, and CSRL—Rankins CSR Ratings, with zero for non-disclosers). Data sources include CSMAR for financials, Hexun and RKS for CSR, CNKI for natural disasters, and the National Bureau of Statistics for regional data.

• Cultural inclusivity is positively associated with firms’ CSR. Baseline regressions show a significant positive relationship; the authors report that a 1% standard deviation increase in inclusivity corresponds to a 1.56 standard deviation increase in CSR.
• Using the alternative inclusivity proxy Out_diet yields consistent positive results.
• Disaggregated CSR components indicate inclusivity significantly enhances responsibilities toward shareholders, employees, consumers, and the environment, with a limited effect on the society component.
• Instrumental variable (2SLS) results validate causality: relief amplitude significantly reduces CI in the first stage, and the instrumented CI significantly increases CSR in the second stage. Robustness with Out_diet-based IV produces similar conclusions.
• Alternative inclusivity proxy (Art_group) also shows positive associations with CSR and its sub-indices (notably shareholders, employees, and consumers).
• Alternative CSR measures (CSRR, CSRL) remain positively and significantly related to CI, reinforcing robustness.
• Mechanisms: CI significantly increases regional gender equality (Ge) and reduces the regional power gap (Pg); higher Ge and lower Pg are associated with higher CSR, supporting the mediating roles of these regional norms.
• Heterogeneity: The positive effect of CI on CSR is stronger for larger firms (significant positive CI×Scale), for state-owned enterprises (significant positive CI×SOE), and for firms with higher board independence (significant positive CI×Inde).

The findings substantiate the institutional economics perspective that informal institutions, particularly regional cultural inclusivity, shape corporate behavior by influencing managerial values and stakeholder orientations. Cultural inclusivity fosters humanistic care and environmental awareness within firms, leading to higher CSR, and operates partly by promoting gender equality and suppressing acceptance of power hierarchies within regions. The results also show that firm context matters: larger, state-owned, and more independently governed firms are more responsive to inclusive cultural environments. These insights extend CSR antecedent research beyond formal institutions and firm-internal factors to geographically rooted cultural norms, offering a micro-level understanding of informal institutions’ impact on governance. Practically, stakeholders and investors can consider regional inclusivity as a signal of firms’ sustainability practices, and regulators might promote inclusivity to bolster CSR in less inclusive regions.

This study demonstrates that regional cultural inclusivity significantly promotes CSR among Chinese listed firms, particularly in dimensions related to human welfare and environmental protection. The results are robust to alternative measures of inclusivity and CSR, fixed effects, clustering, and winsorization. Using relief amplitude as an instrumental variable supports a causal interpretation. Mechanism analyses indicate that inclusivity elevates regional gender equality and dampens power gap perceptions, both associated with greater CSR. Effects are stronger for large firms, SOEs, and firms with higher board independence. The research advances understanding of how geography-based culture influences corporate governance and underscores the vital role of inclusive cultural values in sustainable economic activities. Future work could investigate the formation of cultural inclusivity and its broader socio-economic consequences beyond corporate outcomes.