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ed Fair or Poor. Overall, around 90% of the any director or the chief executive officer served
firms are ranked Excellent or Good, suggesting in high-level government or party positions).
either the quality of Zhejiang’s listed firms are The researchers found no correlation between
comparatively high or the quality of the data higher overall scores and better-governed firms
in the rollout phase is relatively poor. They or more profitable firms. Highly-leveraged firms,
also found that among the five categories set which are subject to higher default risks, were
forth above, the lowest average scores were associated with lower total scores. They found
in the Social Responsibility category: 38.3%, that politically-connected firms were associated
compared to > 96% for each of the other four with higher CSCS scores, not as a result of better
categories. The Social Responsibility category compliance or superior administrative track records,
also generated the greatest variation in scores but by accumulating soft merits from party-state
among firms. As such, the researchers suggest organs under the Social Responsibility category.
that the largest payoff to companies hoping
to raise their CSCS scores may be to engage Incentivizing corporate fealty. Although the
in more “socially responsible” actions, such findings are limited to Zhejiang Province and
as donations to CCP-sanctioned organs and the first publicly-available scores, the research
volunteer actions. nevertheless raises meaningful questions
regarding the implications of the CSCS. For
Determinants of the scores. The researchers example, as a system of evaluation structured
sought to identify the determinants of a by rewards and punishments, the research
firm’s corporate social credit score. Using the suggests that the CSCS has powerful behavioral
China Stock Market and Accounting Research modification potential, nudging businesses to
Database and the Wind Financial Database, adopt the industrial and social policies favored by
researchers collected data on each firm’s the CCP, possibly even if they hurt the company’s
quality of corporate governance (as proxied by bottom line. Foreign companies registered in
the percentage of independent directors on the China are also subject to the CSCS, potentially
board), the firm’s financial condition (level of deepening the complexity of operating in China’s
indebtedness and return on assets), the degree economy. Lastly, the CSCS raises the specter of
of formal party-state connections (such as high-tech central planning — and the potentially
the extent of state equity ownership), and the troubling prospects of such a development for
company’s political connectedness (whether China’s own economic productivity.
SOUTH CHINA BUSINESS JOURNAL 30
firms are ranked Excellent or Good, suggesting in high-level government or party positions).
either the quality of Zhejiang’s listed firms are The researchers found no correlation between
comparatively high or the quality of the data higher overall scores and better-governed firms
in the rollout phase is relatively poor. They or more profitable firms. Highly-leveraged firms,
also found that among the five categories set which are subject to higher default risks, were
forth above, the lowest average scores were associated with lower total scores. They found
in the Social Responsibility category: 38.3%, that politically-connected firms were associated
compared to > 96% for each of the other four with higher CSCS scores, not as a result of better
categories. The Social Responsibility category compliance or superior administrative track records,
also generated the greatest variation in scores but by accumulating soft merits from party-state
among firms. As such, the researchers suggest organs under the Social Responsibility category.
that the largest payoff to companies hoping
to raise their CSCS scores may be to engage Incentivizing corporate fealty. Although the
in more “socially responsible” actions, such findings are limited to Zhejiang Province and
as donations to CCP-sanctioned organs and the first publicly-available scores, the research
volunteer actions. nevertheless raises meaningful questions
regarding the implications of the CSCS. For
Determinants of the scores. The researchers example, as a system of evaluation structured
sought to identify the determinants of a by rewards and punishments, the research
firm’s corporate social credit score. Using the suggests that the CSCS has powerful behavioral
China Stock Market and Accounting Research modification potential, nudging businesses to
Database and the Wind Financial Database, adopt the industrial and social policies favored by
researchers collected data on each firm’s the CCP, possibly even if they hurt the company’s
quality of corporate governance (as proxied by bottom line. Foreign companies registered in
the percentage of independent directors on the China are also subject to the CSCS, potentially
board), the firm’s financial condition (level of deepening the complexity of operating in China’s
indebtedness and return on assets), the degree economy. Lastly, the CSCS raises the specter of
of formal party-state connections (such as high-tech central planning — and the potentially
the extent of state equity ownership), and the troubling prospects of such a development for
company’s political connectedness (whether China’s own economic productivity.
SOUTH CHINA BUSINESS JOURNAL 30
