When politics meets sustainability: the effect of independent directors' political connections on corporate sustainability disclosure in China

Abstract

Purpose

This paper investigates the influence of political connections on sustainability disclosure in the context of China's Regulation 18.

Design/methodology/approach

The study employs a quasi-experimental approach, utilizing difference-in-difference (DiD) analysis, dynamic DiD and propensity score matching to analyze the effects of politically connected independent directors on sustainability disclosure following the implementation of Regulation 18.

Findings

Companies with politically connected independent directors show an improvement in sustainability disclosures after Regulation 18. This effect is stronger for firms facing high political pressure or lacking alternative political power. Additionally, the increase in value from sustainability disclosures compensates for the loss of politically connected independent directors, indicating a positive value impact of sustainability disclosures.

Originality/value

This study provides novel insights into the corporate disclosure policy in China by investigating the impact of politically connected directors on sustainability disclosure. Additionally, it sheds light on the limitations of political power and its substitution effects within companies.

Citation

Ting, H.-I. and Lee, Y.-C. (2024), "When politics meets sustainability: the effect of independent directors' political connections on corporate sustainability disclosure in China", Managerial Finance, Vol. 50 No. 1, pp. 28-49. https://doi.org/10.1108/MF-04-2023-0243