Corporate Social Responsibility in China: The Influence of Dynamic Capability and the Implications on Financial Performance and Investment

Jing Claire Li

Research output: ThesisDoctoral Thesis


The thesis explores the determinants of corporate social responsibility (CSR) adoption and its implications on company financial performance (CFP) and investment in China. In doing so, we aim to answer two primary research questions: (1) how a company’s dynamic capabilities—its ability to respond to the changing environment—can influence the company at incorporating CSR into its operations; and (2) how corporate social performance (CSP) is associated with a company’s financial accounting and investment performance. The study is divided into three empirical research papers as outlined below.
The purpose of paper one is to investigate the determinants that influence a company to incorporate CSR into its operations, which is to adopt strategic CSR (SCSR). The paper primarily examines how a company’s dynamic capability can affect the adoption of SCSR. This study draws on the stakeholder, dynamic capability, and neo-institutional theories. Data were collected from 134 Chinese companies listed on the Shenzhen stock exchange (SZSE) and Shanghai stock exchange (SHSE) over the period 2017 to 2019 to examine the role of dynamic capability on SCSR adoption. The findings suggest that a higher level of dynamic capability than the average industrial level negatively affects SCSR adoption. The findings also reveal that dynamic capability, stakeholder pressures, and regional culture are important predictors of the adoption of SCSR. The empirical findings provide valuable insights into how CSR can affect company performance if used strategically. The use of dynamic capability theory in the study explains SCSR adoption from the perspectives of dynamic capabilities. The study partially supports DCT by focusing on the impacts of dynamic capability on SCSR adoption within companies operating in a developing country, China.
Paper two aims to investigate how CSP relates to CFP across the company life cycle (CLC) stages, including the introduction, growth, maturity, and decline/shake-out stages. This paper also examines how the focus of CSP, in terms of stakeholder dimensions, shifts across the CLC stages. To examine the two research objectives, we used quantitative data collected from 1,628 large, listed Chinese pharmaceutical companies from 2010 to 2018. Drawing on the resource-based view (RBV), stakeholder theory and CLC theory, the study finds supporting evidence that CFP is improved with better CSP across the CLC stages. It also finds, on the basis of different stakeholder groups and across the CLC stages, that the effects of CSP are different. Investors, employees, suppliers, and the government are the most influential stakeholder groups influencing CFP. The study results suggest that CFP is directly linked to CSP and CLC and that the link is associated with stakeholder dimensions of CSR. Overall, the findings highlight the important role of CLC and CSP, which are often cited as important factors for enhancing CFP. This study provides valuable insights into the influence of CLC on CSP, which in turn may shed light on management practices to allocate resources and improve CFP.
Paper three explores the association between CSP and company performance through capital market effects and the role of cash flow volatility (CFV). This paper uses investment–cash flow sensitivity (ICFS) to capture the capital market effects. Drawing on the RBV and stakeholder theory, the association between CSP and ICFS was tested in this paper. To investigate the research objective, this paper used quantitative data collected from 4,082 companies listed on the SZSE and SHSE in China over the period 2010 to 2020. The study finds that companies with better CSP tend to have a greater and significant ICFS in a developing economy such as China. It also finds that the positive association between CSR and ICFS is weaker for companies with a more volatile current CFV and stronger for companies with a more volatile expected CFV. This demonstrates that CFV partially mediates or moderates the relationship between CSP and ICFS. The role of CFV on the association between CSP and ICFS highlights the need for regular management attention and evaluation on the investments and performance in non-financial engagements. This management attention should also be paid when making decisions relating to resource allocation and investment policies. In addition, managers should consider the company's cash flow stability and uncertainty sides in the competitive market environment. These findings suggest that the emphasis on the role of CFV is important in evaluating the performance effect of CSR through the capital market’s response. This study contributes to the CSR, financial accounting and investment literature by responding to the call for research in ICFS in the context of developing countries in general and research on the role of CFV on CSP–ICFS association in particular.
Original languageEnglish
Place of PublicationLondon
Publication statusPublished - Dec 2021


  • Corporate social responsibility (CSR)
  • Strategic CSR (SCSR)
  • Dynamic capability
  • Stakeholder pressure
  • Regional culture
  • Company life cycle
  • Financial performance
  • Investment–cash flow sensitivity
  • Cash flow volatility/stability
  • Resource-based view
  • Dynamic capability theory
  • Stakeholder theory
  • Neo-institutional theory
  • Granger causality
  • Generalised Least Square model
  • Generalised method of moments
  • Developing country
  • Pharmaceutical
  • China

ASJC Scopus subject areas

  • Business, Management and Accounting(all)


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