Growing Up Under Mao: On the Ideological Determinants of Corporate Policies (attempted)

Abstract:

Historically, economic activities are organized around certain ideologies. We investigate the impact of politicians’ ideology on corporate policies by exploring a unique setting of ideological change in China from Mao to Deng around the economic reform in 1978 under a regression discontinuity framework. We find that the age discontinuity of politicians around 18 years old in 1978 who already joined or would shortly join the Communist Party of China (CPC), and later became municipal paramount leaders, has a long-lasting effect on contemporary firm- and city-level policies. Specifically, firms in cities with mayors joining CPC under the ideological regime of Mao have more social contributions, lower within-firm pay inequality, and less internationalization than those under Deng’s regime. These effects are stronger in firms with political connections and are weaker in state-owned enterprises (SOEs) and less market-oriented regions. Empirical evidence suggests that ideology-induced corporate policies have modest impacts on firm investment and performance.