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THE EFFECTS OF TAX INCENTIVES, FINANCIAL PERFORMANCE AND CORPORATE SOCIAL
RESPONSIBILITY ON CHINESE A-LISTED COMPANIES
WU JIN MING
DOCTOR OF PHILOSOPHY UNIVERSITI UTARA MALAYSIA
2021
THE EFFECTS OF TAX INCENTIVES, FINANCIAL PERFORMANCE AND CORPORATE SOCIAL
RESPONSIBILITY ON CHINESE A-LISTED COMPANIES
WU JIN MING (903350)
A thesis submitted to the Ghazali Shafie Graduate School of Government in fulfilment of the requirements for the Doctor of Philosophy/Doctor of
Management Universiti Utara Malaysi
Kolej Undang-Undang, Kerajaan dan Pengajian Antarabangsa (College of Law, Government and International Studies)
UNIVERSITI UTARA MALAYSIA
PERAKUAN KERJA TESIS / DISERTASI (Certification of thesis / dissertation)
Kami, yang bertandatangan, memperakukan bahawa (We, the undersigned, certify that)
WU JINMING (903350) calon untuk Ijazah Ph.D (PUBLIC MANAGEMENT) (candidate for the degree of)
telah mengemukakan tesis / disertasi yang bertajuk:
(has presented his/her thesis / dissertation of the following title):
THE EFFECTS OF TAX INCENTIVES, FINANCIAL PERFORMANCE AND CORPORATE SOCIAL RESPONSIBILITY ON CHINESE A-LISTED COMPANIES
seperti yang tercatat di muka surat tajuk dan kulit tesis / disertasi.
(as it appears on the title page and front cover of the thesis / dissertation).
Bahawa tesis/disertasi tersebut boleh diterima dari segi bentuk serta kandungan dan meliputi bidang ilmu dengan memuaskan, sebagaimana yang ditunjukkan oleh calon dalam ujian lisan yang diadakan pada 23 MAC 2022
That the said thesis/dissertation is acceptable in form and content and displays a satisfactory knowledge of the field of study as demonstrated by the candidate through an oral examination held on: MARCH 23, 2022
Pengerusi Viva
(Chairman for Viva) : PROF. MADYA DR. KALTHUM BT HAJI HASSAN
Tandatangan (Signature) Pemeriksa Luar
(External Examiner)
: PROF. DATO' DR NASRUDIN MOHAMMED
Tandatangan (Signature) Pemeriksa Dalam
(Internal Examiner) : PROF. MADYA DR AZHAR BIN HARUN
Tandatangan (Signature) Tarikh : 23 MAC 2022
Date
Nama Pelajar
(Name of Student) : WU JINMING (903350)
Tajuk Tesis : THE EFFECTS OF TAX INCENTIVES, FINANCIAL
PERFORMANCE AND CORPORATE SOCIAL RESPONSIBILITY ON CHINESE A-LISTED COMPANIES
(Title of the Thesis)
Program Pengajian : Ph.D (PUBLIC MANAGEMENT) (Programme of Study)
Penyelia Pertama
(First Supervisor) :
PROF. MADYA DR. BADARIAH BINTI HAJI DIN
Tandatangan (Signature)
PERMISSION TO USE
In presenting this thesis in fulfillment of the requirements for a Post Graduate degree from Universiti Utara Malaysia (UUM), I agree that the Library of this University may make it freely available for inspection. I further agree that permission for copying this thesis in any manner, in whole or in part, for scholarly purpose may be granted by my supervisor(s) or in their absence, by the Dean, Ghazali Shafie Graduate School of Government where I did my thesis. It is understood that any copying or publication or use of this thesis or parts of it for financial gain shall not be allowed without my written permission. It is also understood that due recognition shall be given to me and to the Universiti Utara Malaysia (UUM) in any scholarly use which may be made of any material in my thesis.
Request for permission to copy or to make other use of materials in this thesis, in whole or in part should be addressed to:
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UUM College of law, Government and International Studies (UUM COLGIS) Universiti Utara Malaysia
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ABSTRACT
This study studies the relationship between tax incentives, financial performance and Corporate Social Responsibility (CSR). In order to encourage the development of corporate CSR, the Chinese government has carried out a series of tax reforms. The purpose of tax reform is to stimulate the development of CSR by reducing the tax burden on enterprises. Taking China's A-share listed companies from 2008 to 2018 as samples, this study uses the intermediary detection model and takes financial performance as the intermediary variable to test the direct and indirect effects of direct tax incentives and indirect tax incentives on the CSR of the sample companies. The results show that the direct tax incentive has a significant direct incentive effect on the CSR of the whole sample of firms, and the mediating effect of financial performance is significant. It is found that the mediating effect of financial performance is particularly significant in state-owned enterprises and non-manufacturing enterprises.
However, indirect tax incentives only have significant CSR incentives for non- manufacturing enterprises, and the mediating effect of financial performance is significant. Further, incentive effect on state-owned enterprises, non-state-owned enterprises and manufacturing enterprises are not significant. In order to improve the incentive effect of tax policies on CSR, this study puts forward suggestions from two aspects: perfecting government policies and improving enterprises' self-construction.
Keywords: Corporate Social Responsibility (CSR), China, Direct Tax Incentives, Financial Performance, Indirect Tax Incentives, Tax Incentives
ABSTRAK
Kajian ini mengkaji hubungan antara insentif cukai, prestasi kewangan dan Tanggungjawab Sosial Korporat (CSR). Untuk mendorong pengembangan CSR, kerajaan negara China telah melakukan serangkaian pembaharuan cukai. Tujuan pembaharuan cukai ini adalah untuk mendorong pengembangan CSR dengan mengurangi beban cukai pada perusahaan. Mengambil contoh syarikat yang disenaraikan dengan saham A China dari tahun 2008 hingga 2018, kajian ini menggunakan model pengesanan perantara dan mengambil prestasi kewangan sebagai pemboleh ubah perantara untuk menguji kesan langsung dan tidak langsung insentif cukai langsung dan insentif cukai tidak langsung CSR pada sampel syarikat. Hasil kajian menunjukkan bahawa insentif cukai langsung mempunyai kesan insentif langsung yang signifikan terhadap CSR keseluruhan sampel syarikat, manakala kesan perantaraan prestasi kewangan adalah signifikan. Didapati kesan perantaraan prestasi kewangan sangat ketara pada perusahaan milik negara dan perusahaan bukan pembuatan. Walau bagaimanapun, insentif cukai tidak langsung hanya mempunyai insentif CSR yang signifikan untuk perusahaan bukan pembuatan, dan kesan perantaraan prestasi kewangan adalah signifikan. Namun, kesan insentifnya terhadap perusahaan milik negara, perusahaan bukan milik negara dan perusahaan pembuatan tidak signifikan. Justeru, untuk meningkatkan kesan insentif dasar cukai terhadap CSR, kajian ini mengemukakan cadangan dari dua aspek: menyempurnakan dasar pemerintah dan meningkatkan pembinaan perusahaan itu sendiri.
Kata kunci: China, Insentif Cukai, Insentif Cukai Langsung, Insentif Cukai Tidak Langsung, Prestasi Kewangan, Tanggungjawab Sosial Korporat (CSR)
ACKNOWLEDGMENT
The PhD study and life passed by in a flash. Looking back on the past years, I feel more fulfilled. When I finished writing this graduation thesis, I felt relieved and filled with emotion.
First of all, I want to express my deepest gratitude to my supervisor, Professor Badariah Haji Din, who has been very patient in guiding me. Let me understand step by step what the thesis should be completed. Whenever I was confused or needed help, she always extended a helping hand and answered my doubts. She made me feel the demeanor and responsibility of being a PhD supervisor. Without her patient and generous guidance, there would be no success that I have accomplished today.
Secondly, I would like to thank Zhang Changming, the leader of Guangdong University of Petroleum and Chemical Technology, and the leadership team of the School of Economics and Management. Without their support and help. I cannot have the opportunity to come to Malaysia to study for a PhD. In addition, I would like to thank my dear colleagues, Yao Cuihong, Zhang Qinxiu, and Yu Jing, who gave me many suggestions and help in my study and life. I have benefited a lot from them.
Last but not least, to my parents and family. Thank you very much for your love, patience and support. It was your inspiration and encouragement that enabled me to finish my study in the end. And my beloved husband Tang Minghua, I want to admit that without your support, patience, encouragement and understanding, I would not be able to complete this paper. Thank you for your unreserved contribution to the family during my studies. It is you who helped me take on the important responsibility of the family, so that I can carry out my creation and research without any worries. Thank you for your understanding and support.
TABLES OF CONTENTS
PERMISSION TO USE ... v
ABSTRACT ... v
ABSTRAK ... vi
ACKNOWLEDGEMENTS ... v
TABLE OF CONTENT ... v
LIST OF FIGURES ... v
LIST OF TABLES ... v
LIST OF APPENDICES ... v
LIST OF ABBREVIATIONS ... v
CHAPTER ONE: INTRODUCTION ... 1
1.1 Background of the study ... 1
1.2 Origin of CSR in China ... 10
1.3 Problem statement ... 19
1.4 Research Questions ... 29
1.5 Research Objectives ... 30
1.6 Scope of the study ... 31
1.7 Significance of the study ... 31
1.7.1 Theoretical significance ... 32
1.7.2 Practical significance ... 32
1.8 Organization of chapter ... 33
1.9 Chapter summary ... 34
CHAPTER TWO: LITERATURE REVIEW ... 35
2.1 Introduction ... 35
2.2 Theories ... 35
2.2.1 Stakeholders Theory ... 36
2.2.2 Externality theory... 39
2.2.3 Pigou tax theory ... 40
2.2.4 Slack resources theory ... 41
2.2.5 Institutional theory ... 41
2.2.6 Rational choice theory ... 42
2.3 Concepts and measurement of CSR, Tax incentive and financial performance ... 43
2.3.1 Concept and measurement of CSR ... 43
2.3.2 Concept and measurement of tax incentive ... 58
2.3.3 Concept and measurement of financial performance ... 66
2.3.4 Summary of main variable measurement methods ... 70
2.4 Driving factors, Influencing factors and Impact of CSR ... 73
2.4.1 Drivers of CSR ... 73
2.4.2 Factors affecting CSR ... 75
2.4.3 Economic consequences of CSR ... 78
2.5 Relationship between Tax incentive, Financial performance and CSR ... 81
2.5.1 Relationship between tax incentive and CSR ... 81
2.5.2 Financial performance and CSR ... 86
2.5.3 Tax incentive and financial performance ... 94
2.6 Research theoretical framework ... 97
2.7 Chapter summary ... 99
CHAPTER THREE: RESEARCH METHODOLOGY ... 100
3.1 Introduction ... 100
3.2 Research Design ... 100
3.3 Sampling ... 101
3.4 Data collection ... 101
3.5 Instrumentation ... 102
3.6 Research Hypotheses ... 102
3.6.1 Hypotheses development of the relationship between tax policy and CSR ... 102
3.6.2 Hypotheses development of the relationship between tax policy and
financial performance ... 103
3.6.3 Hypotheses development of the relationship between corporate performance and CSR ... 104
3.7 Measurement of variables ... 105
3.7.1 Dependent variable ... 105
3.7.2 Independent variable ... 105
3.7.3 Mediating Variable (MV) ... 106
3.7.4 Control variable (CV) ... 107
3.8 Chapter summary ... 109
CHAPTER FOUR: MODEL CONSTRUCTION, DATA ANALYSIS AND FINDINGS ... 110
4.1 Introduction ... 110
4.2 Model construction ... 110
4.2.1 Model principle ... 110
4.2.2 General model construction ... 112
4.2.3 Expansion model construction ... 114
4.3 Data analysis ... 115
4.3.1 Variable statistical description ... 115
4.3.2 Correlation analysis and multicollinearity ... 118
4.4 Empirical results and analysis ... 121
4.4.1 Overall tax incentive effect ... 122
4.4.2 Direct tax incentive effect ... 126
4.4.3 Indirect tax incentive effect ... 130
4.5 Robustness test ... 132
4.5.1 Overall tax incentive effect ... 133
4.5.2 Direct tax incentive effect ... 134
4.5.3 Indirect tax incentive effect ... 135
4.6 Summary of empirical results ... 136
CHAPTER FIVE: PROBLEMS AND SOLUTIONS ... 140
5.1 Introduction ... 140
5.2 Insufficiency of the tax incentives to encourage CSR ... 140
5.2.1 Direct tax incentive policies increase non-state-owned enterprise financial performance insignificantly ... 141
5.2.2 Tax incentives cannot significantly promote the financial performance of manufacturing enterprises ... 142
5.2.3 It is difficult for indirect tax policies to have a direct incentive effect on manufacturing CSR ... 142
5.3 Suggestions to improve the effectiveness of tax incentives for CSR ... 143
5.3.1 Improve government policies ... 144
5.3.2 Corporate self-improvement ... 147
5.4 Chapter summary ... 148
REFERENCES ... 150
ATTACHMENT ... 169
LIST OF FIGURES
FIGURE PAGE
Figure 1.1 Global CSR Reporting Rate Growth Trend from 1999-2017 7 Figure 1.2 Distribution and Trend of Global CSR Reporting Rate from
2011-2017
9
Figure 1.3 Composition of CSR Tax Incentive Policies Promulgated by China from 2000 - 2018
15
Figure 1.4 Compositions of CSR Tax Incentive Policies in China from 2000 - 2018
16
Figure 1.5 Proportion of CSR tax incentive policies in China from 2000 to 2018
16
Figure 1.6 Trends in the number of CSR reports in China from 2005 to 2018
17
Figure 1.7 CSR Report Growth Trend of State-owned Companies in China from 2007 - 2018
21
Figure 1.8 CSR Report Development Trends of Private Companies in China from 2007 - 2018
22
Figure 1.9 Development trend of CSR reports of state-owned and private companies from 2007-2018.
22
Figure 2.1 Theoretical framework of this study 98
Figure 4.1 Mediating effect test procedure 112
LIST OF TABLES
TABLE PAGE
Table 1.1 Major International Corporate Social Responsibility Conventions
6
Table 1.2 Major policies and norms related to CSR issued by China from 2002 to 2018
12
Table 2.1 Summary of IV and MV’s Measurement Methods 70
Table 2.2 Summary of DV’s Measurement Methods 71
Table 2.3 Measurement Indexes of Main Variables in This Study 72
Table 3.1 Variable definitions 107
Table 4.1 Statistical description of overall sample variables 115 Table 4.2 Statistical description of SOE sample variables 115 Table 4.3 Statistical description of NSOE sample variables 116 Table 4.4 Statistical description of ME sample variables 116 Table 4.5 Statistical description of NME sample variables 116 Table 4.6 Correlation coefficient table of overall sample 119
Table 4.7 Correlation coefficient table of SOE 119
Table 4.8 Correlation coefficient table of NSOE 120 Table 4.9 Correlation coefficient table of manufacturing enterprises 120 Table 4.10 Correlation coefficient table of non-manufacturing
enterprises
121
Table 4.11 Model group 1-the effect of overall tax incentives on CSR 122 Table 4.12 Model group 2-the effect of direct tax incentives on CSR 126 Table 4.13 Model group 3-the effect of indirect tax incentives on CSR 130 Table 4.14 Robustness test results on the impact of overall tax incentives
on CSR
133
Table 4.15 Robustness test results on the impact of DTB on CSR 134 Table 4.16 Robustness test results on the impact of ITB on CSR 135
Table 4.17 Summary of the test results of the effect of tax incentives on CSR
136
Table 4.18 Summary of the test results comparing the research questions 137
LIST OF APPENDICES
APPENDICES PAGE
Appendik A Major Policies and Regulations Related to CSR issued by China in 1989-2018
169
Appendik B Tax incentives for CSR implemented in China from 2000 to 2018
173
Appendik C Variable data of China A- listed companies 2009-2018 189
LIST OF ABBREVIATIONS
OTB Overall tax burden
DTB Direct tax burden
ITB Indirect tax burden
SIZE Asset Size
NGOs Governmental Organizations
CSR Corporate Social Responsibility
NAPS Net assets per share
AL Asset-liability Ratio
PID Proportion of Independent Directors
COS Concentration Of Shares
EU European Union Commission
GRI Global Reporting Initiative
ISO International Organization for Standardization
GC Global Compact
G1 The First Edition of the Sustainability Reporting Guidelines
KPMG Klynveld Peat Marwick Goerdeler
WTO World Trade Organization
CED Committee for Economic Development
KLD Index of Kinder, Lydenberg, Domini, and Company MSCI Morgan Stanley capital international
RKS Rankins CSR Ratings
CSIR Corporate Social Irresponsibility
IMF International Monetary Fund
VAT Value-Added Tax
R&D Research and Development
SMEs Small and Medium-sized Companies
ETR Effective Tax Rate
EMTR Effective Earginal Tax Rate
EATR Effective Average Tax Rate
ROA Return On Assets
ROE Return On Equity
ROS Return On Sale
EPS Earnings Per Share
NAPS Net Assets Per Shar
OECD Organization for Economic Co-operation and Development
MRA Meta-Regression Analysis
DV Dependent Variable
IV Independent Variables
MV Mediating Variable
CV Control Variables
NME Non-Manufacturing Enterprise
ME Manufacturing Enterprise
NSOE Non-State-Owned Enterprise
SOE State-Owned Enterprise
TTI Total tax incentives
CHAPTER ONE INTRODUCTION
1.1 Background of the Study
This part generally describes the outline of this study. This outline provides the necessary background and framework for the research question (Wong & Psych, 2016).
This part specifically includes the background of this research, the statement of basic issues, the problems to be studied, the purpose, scope and significance of the research.
Corporate Social Responsibility (CSR) refers to the company voluntarily considers social responsibility and environmental issues in its operations and combines its business activities with stakeholders (European Union Commission, 2001).
"Stakeholders" are groups or individuals whose actions can influence the implementation of the company's operations and objectives, or are affected by the operations or objectives of the business. (Freeman, 1984). The purpose of the company's operations is not only to benefit shareholders, but also to provide employees with a better working environment, to provide consumers with better products, and to increase the overall social welfare. (Dodd, 1932).
Those satisfaction of social obligation could achieve a significant number reductions of the reasonable advancement of ventures and the social economy. Effectively satisfying corporate social duty won't just assist with improving the organization's picture, yet additionally help to upgrade renegotiating capacity and center intensity of the organization (Wang et al., 2011). By and large, The improvement of corporate social obligation is helpful for drawing in and holding excellent workers, hence decreasing work costs and successfully improving operational proficiency (Hart &
Ahuja, 1996). Likewise, improving CSR can assist organizations with building up stable relations with governments and networks, consequently lessening the case and hazard brought about by government sanctions (Dhaliwal et al., 2012; McGuire et al., 1988; Peloza, 2006; Sharfman & Fernando, 2008). In general, CSR fulfillment helps companies obtain the legitimacy of operation (Suchman, 1995) and maximize long- term benefits (Johnson, 1970). Government support for CSR is vital, which advances the generally monetary and social manageability. (Kolk & Van Tulder, 2010).
With the rapid development of the global economy, in order to maximize profits, some multinational companies have not only failed to fulfill their social responsibilities that match their capabilities, but have implemented poor policies that infringe on the interests of stakeholders and undermine environmental resources. For example, the financial scandals of Enron, WorldCom and Xerox (Ball, 2009); the Bhopal pesticide spill in India (Broughton, 2005); the Toyota recall in Japan (Choi & Chung, 2013); the German Volkswagen emissions fraud scandal (Aaron, 2018). These incidents have led
to serious environmental pollution, the loss of interests of shareholders, creditors and consumers, and the massive loss of state fiscal revenue. It is exposed that these international companies are irresponsible to stakeholders and the environment when they use their great power to create their own interests.
CSR requires companies to seek benefits while complying with legal and ethical standards. (Friedman, 1989). So, the voluntary nature of CSR is established within a reasonable and legal framework. Once corporate behaviors break the legal and moral, making up for these social losses and avoiding future legal and moral risks will become an important motivation for companies to fulfill CSR (Sprinkle & Maines, 2010).
In a well-ordered society, the law requires that the power of decision-making is where responsibility lies (Davis, 1967). In other word: those who cannot exercise their power in accordance with the society's sense of responsibility will lose power. Therefore, in order to seek the legality of business (Suchman, 1995) and long-term profit maximization (Johnson, 1970) companies have to re-examine their social responsibilities.
When companies lack CSR awareness, they need to rely on external factors to promote CSR development. Plenty of empirical evidence proves that government legislation is the one of important factor driving companies to fulfill CSR (Dummett, 2006), so the government is responsible for encouraging companies to perform responsible
behaviors (Faruk, 2002).
Governments know about the significance of improving CSR. They effectively take part in supporting organizations in satisfying their social obligations. The UK Companies Act (2006) unequivocally requires recorded organizations to reveal issues and strategy data identified with the climate, workers, society and the local area in the chiefs' report. Sweden presented an arrangement requiring State-Owned Companies(SOC) to receive the Global Reporting Initiative (GRI )system in 2008 ( Oxfam Hong Kong, 2010). German controllers specify that if a recorded organization creates a non-monetary pointer with critical impact, it should be remembered for the yearly report. Danish controllers require the biggest 110 organizations in the nation to add corporate social duty letters in their yearly monetary reports (Oxfam Hong Kong, 2010). In France, the public authority requires organizations with in excess of 300 workers to lead social reviews and reveal work related pointers (Noronha, Tou, Cynthia, & Guan, 2013).
As right on time as the 1980s, numerous global associations have progressively formed significant worldwide shows on CSR. For instance, worldwide association for Institutionalization 9000 (ISO9000) plan personal satisfaction organization skeleton standard. ISO14000 plan regular organization standard Also social responsibility 8000 universal standard.
The show planned after the thousand years is more responsive and partaken by more nations and organizations. In 2000, the United Nations formally dispatched the Global Compact (GC) program (Cetindamar, 2007). The GC drive depends on organizations' willful cooperation in enemy of defilement, assurance of work and common liberties, and the idea of natural insurance, to advance the practical turn of events and equity of the organization (Kell & Levin, 2002). So far, 9,913 companies from 159 countries in developed and developing countries have joined the GC (UN, 2019).
In 2000, the Global Reporting Initiative (GRI) delivered the principal release of the Sustainability Reporting Guidelines (G1), which expects to help organizations, state run administrations, and different associations comprehend issues, for example, environmental change, basic freedoms, and defilement. In 2013, The organization released the fourth edition (G4). This version is the main basis for the current corporate sustainability report. G4 has been used as a collective outgoing duty guideline by governments, international establishments, institutions and enterprises in over 90 rural areas (GRI, 2018). As per Klynveld Peat Marwick Goerdeler (KPMG) insights, 74%
of the worldwide top 100 organizations (N100) pay report and 89% of the world's main 250 organizations (G250) are utilizing a type of direction or system in the report, including the most normally utilized GRI structure, 74% N100 and 89% G250 organization reports utilizing the system (KPMG, 2017).
In 2004, the International Organization for Standardization started the development of
ISO 26000 international standard of social responsibility. The standard is designed to provide the social duty of all sorts of associations a guiding framework around the globe and advance their sustainable growth (Hahn, 2012).
Until now, the worldwide detailing drive (G4) and ISO 26000 have been the focal point of frameworks and methodology to help and guide organizations in planning CSR reports (Sethi, Martell & Demir, 2017). In this context. Numerous multinationals, like Pepsico, Nike, Microsoft and others, have followed this direction with manageability, delivering environmental or citizen reports. (Dupire & M 'zali, 2018). Table1.1 sums up the standards and most important multinational conventions on CSR. Figure1.1 shows the global trend of CSR reporting number since 1999.
Table 1.1
Major International Corporate Social Responsibility Conventions
Time Makers International
conventions and standards
Objective
1987
International Organization for Standardization Quality Management and Quality Assurance Technical Committee (ISO/Tc176)
quality management system standards (ISO9000)
In order to improve the
credibility of products, remove technical barriers to trade, and safeguard the rights and interests of all parties in the production supply chain and consumers.
1993 International Organization for Standardization Quality Management and Quality Assurance Technical Committee (ISO/Tc207)
Environmental Management Series Standard (ISO14000)
To regulate the environmental related business behaviors of enterprises and other
organizations, so as to protect resources and environment and promote the sustainable
development of economy.
1997 Social Accountability
International (SAI) Social
Accountability 8000
International standard (SA8000)
Pay attention to labor, physical and mental health and labor rights
2000 Global Reporting
Initiative (GRI) Sustainability Reporting Guidelines (G1)
This initiative aims to encourage companies to disclose to
stakeholders behavioral
strategies, outcomes, and future improvements for managing and improving economic,
environmental, and social outcomes.
2000 Multinational
companies, chambers of commerce,
multilateral organizations or international agencies
Global
Compact Mobilize multinational
companies around the world to directly participate in actions to reduce the negative impact of globalization and promote globalization in a positive direction.
2010 International Standard Organization
(ISO)
Social
responsibility guideline standard) (ISO 26000)
Developed a content system with comprehensive
international social responsibility standards
Source: From various international convention websites
Figure 1.1：Global CSR Reporting Rate Growth Trend from 1999-2017 Source: Data from KPMG Survey of Corporate Responsibility Reporting 2017
24% 18%
41%
53%
64% 71% 73% 75%
35% 45%
64%
83%
95% 93% 92% 93%
0%
20%
40%
60%
80%
100%
1999 2002 2005 2008 2011 2013 2015 2017
N100 G250
Figure 1 shows that the CSR reporting rate of G205 increased from 35% in 1999 to 93% in 2017, while that of N100 increased from 24% in 1999 to 75% in 2017. It shows that CSR initiatives and CSR international conventions in various countries have received more and more responses from companies, which has become a trend of international company behavior.
Unlike the Western mature economic markets, which have seen spontaneous growth in CSR, Asian countries are mostly developing countries where the government promotes the development and growth of CSR. With economic globalization's further development, multinational corporations begin to enter the Asian market and influence Asian companies. Asian governments are also stepping up regulation of corporate social responsibility disclosure (Noronha, Tou, Cynthia, & Guan, 2013). Malaysia requires recorded organizations to portray CSR exercises in the yearly reports, regardless of whether they don't have CSR exercises, they need to give relating clarifications (Noronha et al., 2013). The Korea Index was launched by the Korea Stock Exchange in 2009 to measure companies' policies, performance and reporting on environmental, social and governance (Noronha et al., 2013). The Indonesian government started the Corporate EIA plan in 1995 and promulgated Government Regulation No. 93 in 2010 to promote corporate social responsibility by using preferential tax policies (Sari & Tjen, 2017).
Under government regulations' guidance and the need of enterprise evolution,
corporate social responsibility in Asia has advanced speedily. Skare and Golja (2014) show that CSR can advance financial development, so nations that help CSR ordinarily have higher monetary development rates. Award Thornton (2013) found in his exploration that the extent of organizations uncovering CSR is 69% in India, 64% in Vietnam and 60% in the Philippines. Indeed, by 2009, over 15% of CSR reports overall are from China (Marquis and Qian, 2014). Figure1.2 reveals global CSR's distribution reporting rate from 2011 to 2017.
Figure 1.2: Distribution and Trend of Global CSR Reporting Rate from 2011-2017 Source: KPMG (2017)
As is visible from Figure 1.2, with the exception of Africa and the Middle East, the CSR reports in the Americas, Europe and Asia Pacific introduced an expanding pattern from 2011 to 2017.In Europe, the reporting rate remained high at around 75%
throughout, but the growth rate was relatively low. The Americas reported even faster growth, reaching a global high of 83 percent in 2017. The reporting rate in the Asia- Pacific region climbed from a global low of 49 percent in 2011 to the second highest
69%
76% 77%
83%
49%
71%
79% 78%
71% 73% 74% 77%
61%
54% 53% 52%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
:2011 2013 2015 2017
American continent Asia-pacific region Europe Middle East and Africa
in 2017, surpassing Europe, the Middle East and Africa, with the four regions growing the fastest. There is great potential and space for the development of corporate social responsibility in Asia.
1.2 Origin of CSR in China
China is a vast emerging Asian economy. Government regulation and corporate political reliance influence corporate social responsibility's development. This is formed by the uniqueness of the Chinese system-the government and the ruling party continue to adhere to the socialist ideology（Sun, W., Zhao, C., & Cho, C. H. 2019).
The Chinese government plays a significant function in corporate outgoing responsibility's development by setting up regulations and connected laws to adjust corporate conduct. (Tang, Ma, Wong, & Miao, 2018)
In 1978, China began to implement the reform and opening-up strategy. At the same time, she began to make GDP growth the main goal of economic development.
Companies began to gain more control over their operations in pursuit of maximizing profits. In this era, the government has promulgated a large number of legislation and regulations to encourage enterprises to perform corporate social responsibility, so as to promote the development of society. The strategy covers the environmental law of 1989, the consumer rights law of 1994, the Labour law of 1995 and the public welfare donation law of 1999. In 1991, the enterprise tax law for foreign-funded enterprises and domestic funded enterprises was introduced in 1993 and 1993 respectively to
innovate and protect employee welfare.
However, around then, the public authority didn't completely understand the significance of CSR, so these laws and guidelines were moderately unpleasant and theoretical, and the subtleties of explicit tasks were not expounded exhaustively (Tan, 2009). In addition, since there are no relevant regulations requiring companies to disclose corporate social responsibility during this period, it is difficult to estimate the performance of corporate social responsibility during this period, resulting in ineffective implementation of these laws and regulations.
When China entered the WTO in 2001, the worldwide economy not only allowed more Chinese businesses to take part in international business, but also brought more international trade ideas and multinational companies to China. International organizations, NGOs and global trade networks have placed isomorphic pressure on developing countries to take corporate social responsibility (Yin & Zhang, 2012).
Because of the need to fuse into worldwide exchange, Chinese organizations can perform worldwide exchanges whenever recognized by worldwide organizations (Lau et al., 2016). Besides, the ecological contamination issue and the mischief to partners ' interests brought about by the quest for momentary benefits by organizations impedes the feasible improvement of China's economy (Su & He, 2011). In order to enhance enterprises' core competitiveness and gain sustainable social development, Chinese enterprises need to guide and help to push corporate social responsibility urgently
(Wang et al., 2011).
At this moment, the Chinese government has begun to really pay attention to corporate social responsibility. In 2001, the China Securities Regulatory Commission issued the listed company governance rules to remind companies to be responsible to their stakeholders and the environment. In 2006, the newly revised Company Law of China used social responsibility as a legal term for the first time, and clearly stipulated in the law that enterprises should abide by social ethics and business ethics. Shenzhen stock exchange also issued social responsibility rules, requiring listed companies to assume responsibility for employees, shareholders, creditors, suppliers, customers, environment, community and social factors, and encouraging companies to disclose social responsibility reports in their annual reports. The Shanghai Stock Exchange followed a similar strategy in 2008. Table1.2 shows the major policies and norms related to CSR issued by China from 2002 to 2018. (More important policies and specifications are displayed in attachment 1).
Table 1.2
Major policies and norms related to CSR issued by China from 2002 to 2018
Time Policy Main Contents
2002 Governance
standards for listed companies
While preserving the company's sustainable development, listed companies should focus on improving community welfare, protecting the environment, developing public welfare undertakings and other problems, and paying more attention to corporate social responsibility.
2006 Companies act
(amendment) It stipulates that the company shall abide by social ethics and business ethics and assume social
responsibilities. At the same time, the company must protect the rights and interests of employees and achieve safe production
2006 Guidelines on social responsibility of listed companies
Listed companies are needed to assume social obligations, including protecting staff, shareholders and creditors, vendors, clients and consumers ' rights and interests, protecting the environment, preserving community relationships and creating social welfare.
2007 Guidelines on environmental information
disclosure of listed
companies of
Shanghai stock exchange
Emphasize that key businesses should concentrate on eight elements: fulfilling law-abiding honesty and trustworthiness, enhancing business sustainability, enhancing product quality and raising service levels, enhancing resource conservation and environmental protection, encouraging autonomous innovation and technological progress, ensuring manufacturing safety and safeguarding emissions.
2007 1.Guidelines on environmental information
disclosure of companies listed on the Shanghai stock exchange
2.On strengthening social responsibility of listed companies
If a listed company has any of the following major environmental protection-related events and may have a significant impact on the trading price of its stocks and derivatives, the listed company shall promptly disclose the incident and the company's operations and interests within two days from the date of the incident. The impact that the relevant person may have. At the same time, it was first proposed to disclose the social contribution per share in the annual social responsibility report.
2008 Guiding opinions on the implementation
of social
responsibility by foreign-funded companies
From the protection of rights and interests, company integrity, environmental protection, the construction of social harmony and other basic aspects, the principle of foreign-funded companies to fulfill social responsibility guidance
2008 Notice of the Shanghai stock exchange on doing a good job in the annual report of listed companies in 2008
The corporate governance section of the Shanghai Stock Exchange (SSE) sample firms listed on the Stock Exchange and businesses issuing abroad listed foreign stocks and financial businesses should reveal the company's social responsibility report at the same moment as the 2008 annual report disclosure.
2017 Guidelines for the preparation of social responsibility reports of foreign invested companies in China
Covers issues of responsibility governance, compliance, local contributions, customers (consumers), supply chain, environment, employees, and communities. It aims to guide foreign-invested companies to pay attention to the role of social responsibility reports, encourage and promote more foreign-funded companies to publish social responsibility reports on a regular and continuous basis, and promote the standardization and standardization of foreign-funded companies' performance and information disclosure.
Source: Central People's Government of China.
https://www.gov.cn/zhengce/index.htm
To arrange with China's monetary and social change and improvement, during this period, China's duty law went through significant change. As an important part of the proactive fiscal policy, tax cuts are a powerful means for the country to implement macro-control. The Chinese government has always regarded reducing corporate tax burdens as the main content of restructuring and promoting growth (Maonan et al., 2019). These changes incorporate a progression of motivating force approaches helpful for CSR improvement. The first is the change of direct tax assessment. The new company income tax law came into effect in 2008. The tax law provides more tax incentives for companies to implement energy conservation and environmental protection, promote technological innovation, undertakes employment and public welfare donations.
Second, indirect tax reform. A value-added tax on consumers, imposed in 2009, and a value-added tax on production, imposed in 1979, have been abolished. The Chinese
government began to implement VAT reform on a pilot basis in 2012 and promoted reform nationwide in 2016. Two major indirect tax reforms are aimed at reducing the tax burden and increasing the technological innovation capacity of firms. According to statistics of state taxation administration, since 2000, China has issued 79 tax incentive policies related to CSR (attached 2). Most of these incentive policies were issued in 2007 and implemented in 2008, as shown in Figure 1.3 and Figure 1.4
Figure 1.3: Composition of CSR Tax Incentive Policies Promulgated by China from 2000 - 2018
Source: State taxation administration. http://www.chinatax.gov.cn/
0 2 4 6 8 10 12 14 16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Community R&D Donations Environmental Employee Customer Employment
Figure 1.4: Compositions of CSR Tax Incentive Policies in China from 2000 - 2018 Source: State Taxation Administration. https://www.chinatax.gov.cn/
According to figure1.5, tax policies that stimulate technological innovation of companies account for 54.43%, followed by policies that encourage companies to implement environmental protection, accounting for 17.72%. Finally, policies that favor consumers, employment, employees and community infrastructure account for 8.86%, 8.86%, 5.06% and 1.27% respectively.
Figure 1.5: Proportion of CSR tax incentive policies in China from 2000 to 2018 Source: State taxation administration. https://www.chinatax.gov.cn/
Multinational companies have published corporate social reports in China (Lau, Lu, &
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
3.80%
54.43%
1.27%
17.72%
5.06%
8.8…
8.86%
Community R&D Donations Environmental Employee Customer Employment
Liang, 2016). The first corporate social responsibility report was published in 1999, and Shell China was the first company to publish a sustainability report. In 2006, State Grid released the first corporate social responsibility report on the sustainable development of national enterprises. Since then, the number of corporate social responsibility reports in China has increased, most of which come from SOC.
Figure 1.6: Trends in the number of CSR reports in China from 2005 to 2018 Source: Golden Bee China CSR Report Database
According to Figure 1.6, only 3 CSR reports were reported in China in 2005, but the number of CSR reports has increased rapidly since 2008. It peaked at 2,613 in 2016 and fell back to 1,665 in 2018. Since 2006, when Chinese listed companies issued CSR reports, the number of CSR reports between 2006 and 2018 has increased by 138 percent.
Since 2000, when the state introduced a series of laws and incentive measures, China's corporate social responsibility has developed rapidly. The rapid development, however, is accompanied by issues that cannot be overlooked. In comparison with areas and
3 12 80 158
563 658 814
1481 1473 1604 1939
2613
1529 1665
0 500 1000 1500 2000 2500 3000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
other countries, corporate social responsibility performance and corporate social responsibility report revelation still need to improve. Existing problems and previous achievements, some doubts emerged: as an important means for the Chinese government to promote corporate social responsibility's development, what role did tax incentives play in corporate social responsibility's development in China? Has it played a role in promoting corporate social responsibility? How does it affect corporate social responsibility? Why are some companies doing well and others not so well?
Although the research on these problems in our country is few, it is very necessary and urgent.
According to the Golden Bee China CSR Report 2017 (Golden Bee China CSR Report (GBEE-CRAS), 2017) from 2009 to 2017, the comprehensive index of SOC has always been in a leading position, showing a high level of stable development. The comprehensive index of foreign capital, Hong Kong, Macao and Taiwan companies and private companies grew rapidly, with an increase of 19.68% and 12.53%
respectively. In the 11 years after the implementation of a series of norms and incentives, China's CSR has developed rapidly. However, events that harm the interests of stakeholders still occur from time to time. During this period, the Zijin Mining dam break in 2010, the Foxconn employees jumped from the building, the 2015 Suzhou poisonous runway incident, the McDonald's food spoilage event in 2017. In the 2012 Asian CSR performance rankings, China ranked ninth, with scores much lower than those of Japan and Singapore during the same period (Skouloudis et al., 2015). The
2017 China Listed CSR Index Report noted that while institutionalization has efficiently encouraged Chinese companies to fulfill their social obligations since 2006, the general promotion of Chinese businesses ' social responsibility remains a long way to go (Phoenix international think tank, 2017).
The development of CSR in China is inseparable from institutional support and its own efforts. In the face of current achievements and problems, some questions have arisen.
Whether tax incentives play a part in encouraging the growth of CSR as an significant means of public macro-control? How does it influence companies ' conduct in fulfilling their social obligations? Why are some companies performing well while other failing to perform? The research on these problems in China is still very rare, but it is very necessary.
1.3 Problem Statement
As China entered the World Trade Organization (WTO) in 2001, Chinese firms are increasingly moving into the global arena. More companies are under global pressure, accepting the notion of CSR and improving the performance of their CSR (Moon &
Shen, 2010). Since 2006, when the Shenzhen stock exchange has issued social responsibility rules for listed companies to encourage the publication of social responsibility reports by listed companies. Figure1.5 shows, with fast growth, the complete amount of CSR reports risen to 1665 by 2018.
However, the rapid development of CSR in China accompanies with problems that cannot be ignored. Corporate malpractices that disregard public interests and damage the environment still occur frequently, such as the Zijin mine dam break in 2010, the Foxconn employee jumping from a building, the Suzhou poison runway incident in 2015, the McDonald's food spoilage incident in 2017, and the rabies vaccine fraud incident in Changchun Chang sheng biotechnology co., ltd. in 2018. The occurrence of these vicious events shows that some companies still have low CSR awareness and fail to consciously fulfill CSR.
The current CSR issues in China are expressed primarily in the amount of CSR disclosures and CSR results. Firstly, the number of CSR reports still needs to be improved. According to the social responsibility report released by the White Paper on CSR in China (2018), among the 2,097 companies that disclosed social responsibility reports in 2017, only 84.8 percent were listed. As soon as 2017, the disclosure rate of social responsibility reports by listed firms in the United Kingdom, Japan and us was 99%, 99% and 97% respectively. Mexico, a developing country, took just two years to raise its rate of corporate social reporting from 58% in 2015 to 90% in 2017.
Secondly, CSR performance still needs to be improved. On the one hand, compared with developed countries, China's CSR evaluation level is relatively low. According to the calculations of Skouloudis, Isaac and Evaggelinos (2015), China's CSR performance score in 2012 ranked only the ninth among Asian countries, much lower
than that of Japan and Singapore in the same period, which was basically consistent with the measurement results of Welford (2005).
The growth of CSR in China, on the other side, continues uneven. The CSR performance of most state-owned companies is at a medium and high level, but the continuity of CSR performance is not stable, and the ranking of CSR performance fluctuates greatly. Private companies also have the problem of increasing fluctuation of social performance ranking. In addition, 70% of private companies' CSR performance in the past decade was at a low level, and in 2018, 90% of private companies' CSR performance was below the medium level (China CSR report, 2018).
Figure 1.7: CSR Report Growth Trend of State-owned Companies in China from 2007 - 2018
Source: Golden Bee China CSR Report database
Note: the nature of companies in the golden bee database can be divided into state- owned companies, state-owned holding companies, central companies, private companies, foreign companies, Hong Kong and Taiwan companies, and others. The
38 75
377 442 523
810 814 780
874 945
884 924
0 100 200 300 400 500 600 700 800 900 1000
2007 2008 2009 2010 201.1 2012 2013 2014 2015 2016 2017 2018
state-owned companies in this paper are state-owned companies in the broad sense, including state-owned companies in the narrow sense, state-owned holding companies and central companies.
Figure 1.8: CSR Report Development Trends of Private Companies in China from 2007 - 2018
Source: Golden Bee China CSR Report database
Figure 1.9: Development trend of CSR reports of state-owned and private companies from 2007-2018.
Source: Golden Bee China CSR Report database
Figure 1.7 shows that SOE continue to be the primary force of CSR satisfaction in
15 33
141 145 199
295 324 281
328
416 411 493
0 100 200 300 400 500 600
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
48% 47%
67% 67% 64%
55% 55%
49% 45%
36%
58% 55%
19% 21% 25% 22% 24%
20% 22%
18% 17% 16%
27% 30%
0%
20%
40%
60%
80%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 The proportion of CSR reports of SOE The proportion of CSR reports of NSOE
China, with the amount of CSR reports increasing from 88 in 2007 to 945 in 2016 and lastly to 924 in 2018. Figure 1.8 shows that private company CSR reports risen from 15 in 2007 to 493 in 2018. As can be seen from figure 9, CSR reports of state-owned companies decreased from 67% in 2009 and 2010 to 55% in 2018, and CSR reports of private companies increased from 19% in 2007 to 30% in 2018. This shows that CSR reports of SOE and private companies are growing on the whole, but the growth rate and direction are not stable and sustainable.
A set of strategies adapted to the domestic circumstances of China can make the application of CSR much easier. Among many incentive policies, tax preference is a fiscal policy that aims to stimulate CSR directly by acting on corporate tax burden.
Tax revenue type is divided into direct tax and indirect tax for the standard whether to produce shift with tax burden. Direct taxes are taxes that companies cannot pass on to others and have to pay themselves. In China, the direct tax that companies pay is the corporate income tax, which is worth 25 percent of their total profits. The incentive method of enterprise income tax is usually to directly reduce the overall tax burden by reducing the taxable income, increasing the expense cost deduction, and reducing the tax rate, so as to achieve the purpose of improving the after-tax profit of enterprises. If companies consider CSR one of several investment options, changes in profitability and taxation will then affect CSR investments in the same way those changes affect other investment decisions（Gandullia, L., & Piserà, S，2020）
Indirect tax refers to the fact that the taxpayer can transfer part or all of the tax burden to the buyer through goods or services. The main indirect tax that companies pay in China is value-added tax. Value added tax is to goods or services in circulation in the production of value-added taxes levied. VAT is calculated as the positive balance of output tax minus input tax for the period. The incentive mode of VAT is mainly to reduce the tax rate and implement conditional partial rebate. The reduction of value- added tax burden is bound to affect the financial resources of enterprises. Better finances can lead to the availability of idle (financial and other) resources that provide companies with opportunities to invest in areas of social performance such as community relations, employee relations or the environment（McGuire,1988 ; Wang,
& Fung, 2018)
To sum up, tax policies encourage corporate social responsibility behaviors mainly by reducing the tax burden of corporate CSR investment and increasing corporate financial performance, so as to promote enterprises to continue to invest in CSR.
However, it can be seen from the implementation results of tax incentive policies above that the incentive effects on corporate CSR are both good and bad. Can these policies lead to an increase in corporate financial performance? Can the growth of corporate financial performance promote corporate reinvestment in CSR? The research on these problems is rare in China, but it is necessary. Because the answers to these questions are helpful to understand and improve the current preferential tax policies, so as to promote the improvement of the level of corporate social
responsibility in China.
The reason why this study studies CSR behavior of Chinese companies from the perspective of tax incentive is due to the needs of theoretical development and the needs of China's development:
On the one hand, there is a lack of literature on the effect of the CSR drive from the view of tax incentives and Chinese samples from the theoretical research range.
Firstly, the CSR-driven effect from the tax incentive view is lacking in empirical literature. The current literature on CSR mainly focuses on the research on the driving factors and catalytic factors based on the stakeholder theory. There is a driving scheme consisting of instrumental motivation, relational motivation and moral motivation for driving variables (Aguilera et al., 2007), Stakeholder driven system (shareholders, creditors, employees, consumers, supplies Business, government, and community) form a driving system (Zhu & Zhang, 2015) and a system of social ethics and strategy-driven (Graafland & Van de Ven, 2006). In terms of CSR catalytic factors, most of the literature results focus on financial performance (McGuire et al., 1988;
Preston & O'babon, 1997; Waddock & Graves, 1997 ; Orlitzky et al., 2003; Chen &
Wang, 2011) company size (Lepoutre & Heene，2006; Kao et al., 2018) company nature (Xu et al., 2015; Zhu et al., 2016; Kao et al., 2018); industry heterogeneity (Cuganesan et al., 2010; Lau et al., 2016; Kao et al., 2018); political relevance (Di
Giuli & Kostovetsky, 2014；Lau et al., 2016); board size (Jensen, 1993; Lau et al., 2016); cost of equity capital (Galema et al., 2008; Xu et al., 2015), Executive Characteristics (Palmer, 2008; Lau et al., 2016), advertising campaigns (Servaes &
Tamayo, 2013). That is to say, in the research on what factors can drive and influence the level of CSR, tax incentives are rarely used as independent variable (IV) for research.
Secondly, the current literature on the effect of tax incentives on CSR focuses primarily on the effect of tax incentives on some variables. For example, there are lot of study on the impact of tax incentives on R&D innovation (Cappelen et al., 2012; Castellacci
& Lie, 2015; Crespi et al., 2016), charitable donations (Fack & Landais, 2010; Yetman
& Yetman, 2012; Barnea et al., 2013), environmental and employment (Li & Yi, 2014;
Xu & Zeng, 2016), but little research on the impact of the overall CSR system. There is a lack of studies in the literature on the effect of tax incentives on CSR on the general CSR scheme as DV,
Thirdly, literature on economic results as an intermediate variable for investigating the effect of tax incentives on CSR is lacking. The current studies on the relationship between tax policy and financial performance (Mayende, 2013; Guan & Yam, 2015;
Song et al., 2017) and the relationship between financial performance and CSR (Tang et al., 2012; Waworuntu et al., 2014; Xiong et al., 2016) are abundant and mature, but there are few studies combining these two relationships. This paper attempts to take
financial performance as the link point between tax incentive and CSR, analyze the two relations as a complete causal system, and disclose the transmission effect of financial performance between tax incentive and CSR.
Fourthly, the current literature on CSR research for Chinese companies is rare. There are a lot of literature on the study of CSR. However, the findings of the present studies are focused primarily in Western developed countries and less in Asian nations, particularly in China, as prior study fields have been dominated by developed countries where corporate and stakeholder pressures are supposed to be greater than emerging economies. (Goss & Roberts, 2009; Sharfman & Fernando, 2008). The results of the existing literature may not be suitable for CSR awareness as a relatively low developing country market (Gao, 2009; Sharfman & Fernando, 2008). The West has a lengthy history of developing CSR, and in China, CSR has a brief period of growth.
Although the concept of CSR has entered China in the 1990s, it was not until 2001 that China joined the WTO that CSR officially entered the field of vision of Chinese companies and governments. In other words, CSR has been developing in China for less than 30 years. Compared with China, since the emergence of the CSR concept, the development of CSR in western developed countries has been nearly a century.
Therefore, due to the short development time and the lack of experience for reference, there are relatively few studies on CSR in China.
On another hand, from the actual development of China, improving CSR is necessary to revitalize the economy and sustainable development. Since entering the WTO,
Chinese companies have been under increasing pressure from the international market.
According to data disclosed in KPMG's CSR Report 2015, Compared to the other six G250 countries (countries with top 250 global incomes): Germany, France, Japan and the United Kingdom, China's carbon emissions reporting ratio (56%) or carbon emission quality score (10%) are lower than other countries and lower than the global average(KPMG, 2015). The rise of the China CSR Initiative is mainly to respond to the growing international review and criticism of a series of recent unqualified products produced in China, such as lead paint, contaminated pet food and melamine- contaminated dairy products. (Raynard et al., 2013). In other words. If Chinese companies want to join the international market to compete, they must upgrade their CSR levels in accordance with international market rules and adjust themselves to meet international competition requirements. What's more, in 2013 and 2015, China proposed two major strategies affecting future economic and social development : Belt and Road Initiative (BRI) and "Made in China 2025". The former is bound to promote cross-level connectivity with other Asian countries and European countries, releasing the potential of the Eurasian continent and its neighbors in Africa (Andornino, 2017).
The latter hopes to improve industrial capacity through innovative manufacturing, optimize the industrial structure of China, and attain green manufacturing and the environment (Li, 2018). The promotion of the two strategies is to better complete the economic transformation of the "new normal" of the domestic economy (Yu & Zhang, 2015), and to better adapt and deepen the interaction with the world economy. In the context of today's CSR globalization, raising the CSR level of domestic companies is
undoubtedly an important boost to the realization of these two strategies, which will help China to revitalize the economy and achieve sustainable socio-economic development.
In summary, whether it is from the needs of theoretical research or the needs of national development, it is valuable and necessary to study how tax incentives can improve the CSR in China. As Gao (2008) said, China will be a good sample if it wants to expand its understanding of CSR.
1.4 Research Questions
In order to study how tax incentives can improve the CSR in China we should verify whether the current tax policy really stimulates the improvement of CSR and exposes the transmission medium that policy affects CSR. This research tries to evaluate the impact of CSR tax policy by introducing the financial performance to verify whether tax strategies can influence CSR conduct by influencing economic performance. Then we need to answer the following questions:
RQ1: Does the current tax incentive affect the CSR?
RQ2: Does the current tax incentive affect financial performance?
RQ3: Does financial performance has a mediating effect in the process of tax incentive affecting CSR?
In order to distinguish the effect of the same tax policy on different companies, this
