Is the State a Socially Responsible Shareholder? State-Owned Enterprises, Political Ideology, and Corporate Social Performance

Abstract

The effects of state ownership on firms’ outcomes depend on how governments influence the goals of state-owned enterprises (SOEs). Yet scant scholarly attention has been devoted to understanding what circumstances shape governmental influence on SOEs’ corporate social performance (CSP). Addressing this gap is important because SOEs are becoming increasingly more hybrid, and must thus balance multiple private and public stakeholders’ financial and social goals. We contend that, compared to non-SOEs, SOEs face additional institutional and legitimacy pressures that lead them to act in socially responsible ways, resulting in higher social and environmental CSP. However, these pressures are moderated by two other factors that determine the strength of governmental influence: whether the state has a majority shareholding and the incumbent government’s political ideology. We examine a 12-year panel of 150 Brazilian listed firms, including 41 SOEs, and demonstrate that state ownership is positively associated with the social dimension of CSP but only when the state is the majority shareholder, and thus able to strongly influence SOEs’ goals. Moreover, the more right-leaning the government, the weaker becomes the moderating effect of majority state ownership. This is because political ideology determines how governments influence the tradeoffs between SOEs’ economic and social goals.