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Economic
Economic policy uncertainty and policy
corporate social responsibility uncertainty

performance: evidence from China

Tianjiao Zhao
School of Economics and Management,
University of Science and Technology Beijing, Beijing, China Received 13 May 2020
Revised 27 July 2020
9 October 2020
Xiang Xiao 20 November 2020
School of Economics and Management, Accepted 1 December 2020

Beijing Jiaotong University, Beijing, China, and

Bingshi Zhang
State Grid Energy Research Institute Co., Ltd, Beijing, China

Abstract
Purpose – The purpose of this paper is to show how the external issue of economic policy uncertainty (EPU)
affects enterprises’ corporate social responsibility (CSR).
Design/methodology/approach – This study investigates the relationship between EPU and CSR
based on the Chinese capital market from 2010 to 2018. Following the most recent studies focused on
economic policy uncertainty, this paper uses the news-based method proposed by Baker et al. (2016) to
measure EPU and explore the effect of EPU on CSR, as well as the mediating role of state ownership in such a
relationship.
Findings – Empirical results show that increasing EPU will restrain enterprises’ social responsibility
behaviour and the inhibitory effect is more obvious for state-owned enterprises. Further analyses reveal that
the inhibitory effect of EPU on CSR is stronger for enterprises that face severe financial constraints and is
significant for various components of CSR, and trade policy uncertainty could also curb enterprises’ social
responsibility behaviour.
Practical implications – As a stable economic environment is important for enterprises’ CSR
engagement, the present study’s conclusions can help policymakers better understand the implications
of policy stability for enterprises’ financial and non-financial decisions and especially their CSR
decisions.
Social implications – With the increasing attention paid to the CSR of enterprises, this study provides
evidence that enterprises should develop appropriate CSR strategies according to the economic policy
environment and enhance their capacity to withstand the risks generated by EPU.
Originality/value – To the best of the author’s knowledge, this study is the first to analyse the
relationship between EPU and CSR. The results contribute to a better understanding of what issues influence
enterprises’ CSR engagement, highlighting the importance of a stable economic policy environment and of
enterprises’ ability to withstand risks.
Keywords Corporate social responsibility, Ownership structure, Economic policy uncertainty
Paper type Research paper

Sustainability Accounting,
This research is funded by China Postdoctoral Science Foundation (grant number: 2019M660472), Management and Policy Journal
Social Science Department of the Ministry of Education, PRC (grant number: 20YJC630225), and © Emerald Publishing Limited
2040-8021
University of Science and Technology Beijing (grant number: FRF-TP-19-065A1). DOI 10.1108/SAMPJ-05-2020-0158
SAMPJ 1. Introduction
Economic policy is an important tool from which the government can shape the external
environments of enterprises. In addition to improving the macroenvironment, economic
policies have a considerable impact on the behaviours of microenterprises. Along with
increasing economic policy uncertainty (EPU), enterprises become more cautious when
making corporate decisions and especially the investment and financing decisions, as these
are the main mechanisms by which EPU affects the real economy (Matousek et al., 2020).
Prior literature on EPU and microenterprise behaviour has mostly focused on the impact
of EPU on cash holdings (Demir and Ersan, 2017), investment decisions (Julio and Yook,
2012), dividend payments (Huang et al., 2015), asset pricing (Brogaard and Detzel, 2015;
Kaviani et al., 2017; Liu et al., 2017), capital structures (Zhang et al., 2015), stock prices
(Pastor and Veronesi, 2012), etc. In corporate decision-making, investment decisions are
particularly affected by policy uncertainty. Baker et al. (2016), based on their constructed
indices of EPU, find that policy uncertainty is associated with greater stock price volatility
and reduced investment and employment in policy sensitive sectors. In addition, Demir and
Ersan (2017) find that firms prefer to hold more cash when uncertainty increases. All of
these studies show that enterprise managers will take some measures to cope with
macroeconomic policy uncertainty such as a higher level of cash holdings and more robust
investment decisions. Although some evidence is provided in the literature investigating the
impact of macroeconomic policy uncertainty on enterprise decision-making (Kang et al.,
2014; Wang et al., 2014; Demir and Ersan, 2017; Nagar et al., 2019; Chen et al., 2020), the
relationship between EPU and corporate social responsibility (CSR) is still an unexplored
field of research. However, corporate non-financial decisions such as CSR decisions may
have a considerable impact on enterprises’ financial performance. In addition to the
heterogeneity of enterprises, the macroeconomic environment greatly affects decision-
making on CSR (Cassely et al., 2020). How CSR is affected by the uncertainty of
macroeconomic policy is also a concern of the government and various stakeholders.
There are competing views on the relationship between EPU and CSR. On the one hand,
EPU is not conducive to the information environments of enterprises, which makes
managers prudent when making social responsibility decisions. On the other hand, Borghesi
et al. (2019) find that CSR could mitigate the adverse impact of EPU on firm value.
Therefore, enterprises may engage in CSR more when EPU is high. Nagar et al. (2019) find
that managers tend to engage in more voluntary information disclosure when EPU is high to
transmit a positive signal to outside investors. Based on these contradictory viewpoints, do
enterprises undertake CSR to send a positive signal to cope with EPU? In this study, we
attempt to address this issue and investigate whether and how EPU influences individual
enterprises’ CSR.
Socially responsible investment as an important part of enterprises’ investment
strategies, is playing an increasingly important role in enhancing the long-term financial
performance of an enterprise. It can not only help enterprises establish a good reputation
and obtain better access to information and resources from stakeholders, but can also
enhance corporate governance through reduced information asymmetry and agency
problems. We focus on CSR in the present work for the following reasons. General corporate
investment is designed to realize the goal of maximizing the profits of individual enterprises
and thus it benefits shareholders or management. However, CSR benefits various
stakeholders and society as a whole. Therefore, all sectors of society call for CSR and it is of
great significance to explore the factors that motivate enterprises to invest in social
responsibility. In addition, Chinese enterprises have insufficient understanding of the
importance of and need for social responsibility. As CSR has not been deeply embedded in
corporate practice in China, macroeconomic fluctuations such as resulting from EPU may Economic
have a great influence on CSR. Especially as the macroeconomic downtrend has been policy
increasingly serious in recent years, economic policies around the world have become highly
uncertain. Given these conditions, to accelerate the development of CSR in China, exploring
uncertainty
the impact of EPU on CSR could help the government improve the macroeconomic
environment and help enterprises better develop CSR strategies and implement social
responsibility.
From data on Chinese A share listed enterprises for 2010–2018 and using news-based
EPU indices as a proxy for EPU, we find that when EPU increases, enterprises undertake
less social responsibility. The effect of EPU in inhibiting CSR is more obvious for state-
owned enterprises (SOEs). Further analyses show that the inhibitory effect of EPU on CSR is
more obvious for enterprises facing greater financial constraints and the restraining effect of
EPU on CSR holds true for various dimensions of CSR, including enterprises’ responsibility
to shareholders, employees, suppliers, customers and consumer rights, the environment and
society; corporate donations and CSR report quality. In addition, trade policy uncertainty
(TPU) plays a role in restraining enterprises’ socially responsible behaviour. Our results
remain robust when using various EPU measurements and taking endogeneity issues into
consideration.
Our research contributes to the literature in the following respects. Firstly, the prior CSR-
related literature largely adopts enterprises’ heterogeneous characteristics to theorize on
firms’ engagement in CSR and has not sufficiently integrated macroeconomic factors. This
study links the macroeconomy to microbusiness and thus enriches the literature on factors
that influence CSR. Secondly, related studies have focused on the impact of EPU on
corporate financial decisions such as financing and investment decisions while few scholars
have paid close attention to the influence of EPU on enterprises’ non-financial decisions.
This research fills this gap and examines the impact of EPU on CSR from the stakeholder’s
perspective, thus contributing to the literature on the relationship between EPU and
enterprises’ non-financial decisions. Thirdly, in view of the obvious differences between
SOEs and non-SOEs in undertaking social responsibility, we further find that the inhibitory
role of EPU in CSR is more pronounced for SOEs, which can help guide the Chinese
Government in better introducing policies that are adjusted to the macroeconomy and in
encouraging enterprises to participate in social responsibility.
The remainder of the paper proceeds as follows. Section 2 presents the institutional
background considered and Section 3 proposes our research hypotheses based on theoretical
analysis. Section 4 describes the sample data and methodology used in the analysis. In
Section 5, we present the results of the base model, robustness checks and additional tests.
Finally, Section 6 concludes the paper with the study’s implications.

2. Institutional background
Prior literature depicts China as follows: “Neither its legal nor financial system is well-
developed, yet it has one of the fastest-growing economies” (Allen et al., 2005). We examine
the Chinese capital market for the following reasons.
Firstly, an economic policy heavily guides corporate decision-making in China. In the
Chinese institutional environment, the government acts as a “visible hand”. As the Chinese
Government controls large-scale economic resources and uses various means of economic
regulation, governmental regulation and control could play a considerable guiding role for
enterprises in China. Thus, enterprises are influenced by both market factors and
government policies. However, when the macroenvironment fluctuates, government
departments become more cautious. They, in turn, introduce economic policies relatively
SAMPJ slowly or the clarity or severity of economic policies diminishes, resulting in increased
uncertainty surrounding economic policies. Under these conditions, enterprises lack
guidance, complicating the process of enterprise decision-making.
Secondly, the development of CSR in China still has a long way to go and this study aims
to promote the development of CSR in China. The China Securities Regulatory Commission
(CSRC) together with the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange
(SZSE) introduced regulations for the mandatory disclosure of social responsibility reports in
2008, which require four types of listed companies, including companies listed under the
“corporate governance sector” of the SSE, companies that issue stocks listed abroad, financial
listed companies and Shenzhen 100 index companies, to disclose annual CSR reports. Other
companies are encouraged to disclose CSR reports voluntarily. While the number of companies
disclosing CSR reports is increasing each year, the degree of CSR engagement among Chinese
enterprises is still relatively low. According to the Chinese Corporate Social Responsibilities
Database (CCSR) of the Chinese Research Data Services Platform, only 943 A-share listed
companies released CSR reports in 2019, accounting for only 26% of all SSE and SZSE listed
companies. Although the public has attached great importance to CSR in China in the past
decade, CSR performance is still relatively limited and much disreputable information on CSR
activities continues to be disseminated. Thus, there is still a large gap between China and
developed countries in the practice of CSR. Factors that influence CSR have thus been a major
focus of academic research in recent years.
Thirdly, state ownership greatly affects whether Chinese enterprises fulfil social
responsibilities (Hu et al., 2018). The State-Owned Assets Supervision and Administration
Commission of the State Council issued Guidelines to the Central-Government-Controlled
SOEs on Fulfilling CSR in 2007. In response to a call from the government, not only central
enterprises but also almost all SOEs have vigorously developed their CSR efforts and played
an exemplary role. Thus, in reference to the Chinese institutional background, discussing
whether the impact of EPU on CSR differs between SOEs and non-SOEs could help
management make appropriate strategic CSR choices to better cope with the negative effects
of EPU and enhance capacities to withstand the risks brought about by EPU.

3. Literature review and hypothesis development

3.1 Economic policy uncertainty and corporate social responsibility
The prior literature on CSR mainly examines the economic consequences of CSR. Most
studies investigating the factors that affect CSR focus on the heterogeneous characteristics
of enterprises and idiosyncratic uncertainty while there is a lack of research investigating
the relationship between macroeconomic policy and microenterprise decisions, especially in
terms of how macroeconomic policy uncertainty affects CSR behaviour.
Corporate strategic decision-making is largely shaped by the external economic
environment. Based on information asymmetry theory, EPU will make it more difficult for
investors to search for information, which will, in turn, increase the capacity for
management to conceal bad news, increasing information asymmetry among enterprises
(Jin et al., 2019), as well as stock price volatility and risk premiums (Pastor and Veronesi,
2012; Brogaard and Detzel, 2015; Liu and Zhang, 2015). In addition, EPU prompts some
investors to collect private information, leading to information asymmetry in the subsequent
pricing processes of trading activities (Nagar et al., 2019). Therefore, EPU worsens the
enterprise’s information environment (Nagar et al., 2019). For precautionary reasons,
managers must make financial decisions cautiously to cope with the impacts of EPU on
enterprises. Panousi and Papanikolaou (2012) find that managers are risk-averse and will
invest less when firm-specific uncertainty increases. Baum et al. (2010) show that the impact
of policy uncertainty on enterprise investment mainly manifests through cash flow. When Economic
uncertainty in economic policy increases, managers may make deviations or even errors in policy
predicting future cash flow. Thus, when EPU rises, executives must be more cautious.
EPU can affect individual enterprises in terms of costs, sales, profits and various
uncertainty
financial and non-financial decisions (Jeong, 2002; Wang et al., 2014). In particular, corporate
investment is usually costly and irreversible and CSR investment is a typical example.
Compared to other types of corporate investment, Chinese enterprises have insufficient
understanding of the importance of and need for social responsibility. In terms of needs,
traditional investment involves meeting the needs of normal production and operation (such
as property, plant, and equipment investment) or sustainable development (such as R&D
investment), which is necessary and of great significance to enterprises. However, CSR is not
necessary for most listed companies in China with the exception of those that are required to
disclose CSR reports [1]. In terms of importance, although society has paid increasing
attention to CSR, the development of CSR in China remains slow. As CSR has not been
deeply embedded in corporate practice in China, macroeconomic fluctuations such as those
resulting from EPU may have a great influence on CSR behaviour. It is generally believed
that CSR investment has a longer payback period and that its return is more uncertain. The
liquidity resources that are input into CSR (e.g. pollution control and corporate donations)
may have a negative effect on an enterprise’s short-term financial performance (Lin et al.,
2019). During periods in which the uncertainty of economic policy increases, enterprises will
become more cautious and management will make investment decisions that can ensure the
rate of return. Compared to those of other investment projects, the investment returns of
CSR are more uncertain, especially during times of economic policy turmoil.
Therefore, the use of this form of CSR, which is neither necessary nor important for
enterprises and comes with relatively high risks, is likely to be less common in enterprises
when EPU is high due to a worsened information environment. Thus, we propose the
following hypothesis:

H1. Increased EPU will restrain enterprises’ socially responsible behaviour.

3.2 The moderating role of state ownership

In China’s institutional setting, SOEs and non-SOEs show great differences in terms of
assuming social responsibility (Hickman, 2020). Chinese SOEs are often expected to
undertake levels of substantial social and environmental responsibility due to their state-
owned nature (Hu et al., 2018), which should also lead to differences between SOEs and non-
SOEs in terms of bearing CSR when faced with high levels of uncertainty in economic
policies. We believe that the impact of EPU on CSR differs between SOEs and non-SOEs for
the following three reasons.
Firstly, SOEs are more obviously influenced by government policy; thus, economic
policy uncertainties should have a greater impact on SOEs. As SOEs are the most effective
implementers of national policies (Pan et al., 2020), investors will regard SOEs and the
government as a community. When EPU is high, SOEs will become less decisive on what
actions to take. Less information disclosure and fewer financial decisions significantly
increase the degree of information asymmetry in SOEs, and SOEs then become particularly
cautious when making socially responsible investments. However, as non-SOEs are less
influenced by government policies, the influence of EPU on CSR is relatively weak for these
enterprises. Secondly, SOEs form an important part of the national economy. In periods of
high uncertainty in economic policies, the task of stabilizing overall economic conditions is
more important than undertaking the political task of assuming social responsibility. Thus,
SAMPJ SOEs mainly focus on ensuring economic performance when EPU is high and might then
reduce the burden of social responsibility to some extent. Thirdly, the motivations for and
modes of resource allocation through CSR are different between SOEs and non-SOEs,
leading to differences in the effect of EPU on CSR. SOEs are under more political pressure to
invest in public goods, whereas non-SOEs are mainly motivated to assume CSR to improve
their economic performance and thus engage in CSR in ways that directly serve their
primary stakeholders; thus, CSR impacts non-SOEs’ financial performance more positively
(Long et al., 2020). The CSR of non-SOEs is not in conflict with the goal of realizing economic
performance. Therefore, when EPU is high, to ensure economic benefits, non-SOEs are less
affected by EPU than SOEs. Thus, the inhibitory effect of EPU on CSR behaviour is more
obvious for SOEs. We thus propose the following hypothesis:

H2. The inhibitory effect of EPU on CSR behaviour is more obvious for SOEs.

4. Data and methodology

4.1 Data and sample selection
We use a large sample of A-share listed enterprises on China’s SSE and SZSE for 2010–2018.
We choose this sample period partly because of the availability of CSR data. The
standardization and legalization of CSR in China began with the introduction of a series of
CSR-related policies and regulations in 2008. However, as there are only very few data for
2009, we take the year 2009 as the transitional period and our study period begins in 2010.
We obtain CSR data from Hexun website, China’s oldest vertical financial portal website
[2]. Hexun is a subsidiary organization of Lianban, formerly the China Securities Market
Research and Design Centre. We adopt the Chinese monthly policy uncertainty index
developed by Baker et al. (2016) to measure EPU in China and use the arithmetic and
geometric averaging methods to transform monthly data into annual data. Financial data on
the sample enterprises are retrieved from the China Stock Market and Accounting Research
(CSMAR) database. We exclude financial firms and “special treatment” (ST) shares [3]. We
also exclude firm-year observations that are missing the necessary data for the variables used
in our analysis. All of the continuous variables are winsorized at the 1% and 99% quantiles to
minimize the influence of outliers, i.e. observed values falling outside the 1% or 99% quantile
are replaced with the values of 1% or 99%, respectively. Our final sample consists of 19,102
firm-year observations of 3,022 enterprises.

4.2 Variables
4.2.1 Corporate social responsibility. CSR data was retrieved from the Hexun website. Hexun
applies a comprehensive rating based on firms’ CSR activities using the following five categories:
firms’ responsibility to shareholders, to employees, to suppliers, customers and consumer rights, to
the environment and to society. Under these 5 categories, there are 13 subcategories and 37
indicators. Hexun’s evaluation system is one of the main tools used to measure Chinese listed
companies’ social responsibility performance and this proxy for CSR is widely used in the prior
literature (Li and Foo, 2015; Xiong et al., 2016; Tang et al., 2018, 2019; Zhao and Xiao, 2019; Zhong
et al., 2019; An, 2020; Shou et al., 2020; Wang et al., 2020; Zhang et al., 2020). In an additional test,
we use the CSR score of each of the five categories (namely, the responsibility to shareholders; to
employees; to suppliers, customers and consumer rights; to the environment and to society), as
well as corporate donation (from the CSMAR database) and CSR report quality data (from the RKS
database) to further examine whether the inhibitory effect of EPU on CSR holds true for various
dimensions of generalized CSR.
 4.2.2 Economic policy uncertainty. The Chinese EPU index was obtained from Baker Economic
et al. (2016) [4]. The index was jointly released by Stanford University and the University of policy
Chicago and includes several indices for several countries, including the monthly Chinese uncertainty
EPU index. Baker et al. (2016) estimate the Chinese EPU index by constructing a scaled
frequency count of articles focused on policy-related economic uncertainty published in the
South China Morning Post. This index is widely used as a proxy for EPU in the literature
(Gulen and Ion, 2016). As CSR data are annual, following Demir and Ersan (2017) and Nagar
et al. (2019), we calculate annual EPU data based on the monthly EPU index using
arithmetic averaging and all EPU data are divided by 100 to maintain orders of magnitude.
In addition, in our robustness tests, following Wang et al. (2014) and Demir and Ersan
(2017), we use the geometric averaging method to calculate annual EPU, which is denoted as
EPU2.
4.2.3 Ownership structure. China has long been well-known for its state-controlled
economic and political system (Hu et al., 2018). Under this system of state ownership, Chinese
enterprises can be divided into SOEs and non-SOEs. An SOE is a solely SOE or state-owned
capital controlling enterprise in which the State Council or Local People’s Government act as
investors on behalf of the State and the State is the ultimate controller. The ultimate controller
is defined by the CSMAR database and extant literature (Long et al., 2020) as the largest
shareholder or a shareholder whose voting rights exceed those of the largest shareholder, who
has more than 30% of shareholding and voting rights, who is able to appoint more than half of
all board members or who is subject to any other stipulation determined by the CSRC. All other
enterprises are non-SOEs. Following the prior literature, we assign the dummy variable State a
value of 1 if an enterprise is an SOE and a value of 0 otherwise.
4.2.4 Control variables. The control variables cover firm-level characteristics and macro-
economic factors. Firm-level characteristic variables include financial performance (ROE),
firm size (Size), financial leverage (Leverage), corporate governance (Dual), cash holdings
(Cash), investment opportunities (Q), state ownership (State), financial constraints (FC) and
life cycle stage (Life). Besides, to control for the macroeconomic factors, we include gross
domestic product (GDP). Variables definitions are shown in Table 1.
Table 1 provides definitions for the variables used in this analysis.

4.3 Empirical model

Our regressions are based directly on annual data. We use pooled cross-sectional firm-year
observations to examine H1 by using the following research model:
X X X X
CSRi;t ¼ a0 þ a1 EPUt1 þ aj Controlsi;t1 þ Year þ Ind þ Province
j

(1)
where CSRi,t represents the CSR score that enterprise i obtains in year t and EPUi,t-1 is the
previous year’s level of EPU. The variable definitions are shown in Table 1. All of the
independent variables are one-period lagged to control for endogeneity. We account for a
year and industry fixed effects and as CSR might be quite different between different
provinces, we also control for province fixed effects in the model (1) [5], [6]. We use the
heteroskedastic-robust standard error in the ordinary least squares (OLS) regression. If H1
is valid, a1 in equation (1) is expected to be significantly negative.
To examine the different impacts of EPU on CSR between SOEs and non-SOEs, we
introduce the product term of EPU and State as shown in equation (2):
SAMPJ Variable Symbol Description

Dependent variable CSR CSR data comes from the Hexun website
Independent variables EPU The EPU index constructed by Baker et al. (2016). We use the
arithmetic averaging method to transform the initial EPU
index into annual data, and then divide this value by 100
Control variables ROE Return on asset, equals to net profits divided by net assets
Size The natural log of total assets
Leverage The ratio of total debt to total assets
Dual The difference between the control rights and ownership
rights of the enterprises’ actual controller
Cash Cash and cash equivalents over lagged total assets
Q Tobin’s Q value
State If the enterprise is state-owned, State is equal to 1; otherwise,
it is equal to 0
FC For each fiscal year, we ranked firms according to the SA
index. Firms with SA indices exceeding the annual median
SA index were considered financially constrained where FC =
1 or 0 otherwise
Life A dummy variable equal to 1, 2, 3 or 4 if the enterprise is in the
initial, growth, mature or declining life cycle stage, respectively
GDP The natural log of GDP

Notes: We adopt the coding method proposed by Dickinson (2011) and combine three types of cash flow
information characteristics (positive or negative) to define the life cycle. For example, an initial firm has
negative operating and investment cashflows and positive financing cashflows. This method has been
Table 1. widely used in recent studies (such as Faff et al., 2016). Appendix A shows the specific method used for
Variable definitions corporate life cycle coding

X
CSRi;t ¼ b 0 þ b 1 EPUt1 *Statei;t1 þ b 2 EPUt1 þ b 3 Statei;t1 þ b j Controlsi;t1
j
X X X
þ Year þ Ind þ Province (2)

We also consider year, industry and province fixed effects and use the heteroskedastic-
robust standard error in the OLS regression. If H2 is valid, both b 1 and b 2 in equation (2)
are expected to be significantly negative.

5. Empirical results
5.1 Descriptive statistics
The descriptive results of all the variables are shown in Table 2. The results reveal that the
mean value of CSR score is 25.01, which indicates that the overall level of social
responsibility of Chinese listed companies still has great room for improvement. The
standard deviation of CSR is 17.39, suggesting that the social responsibility performance of
sample enterprises vary greatly. The enterprises with the worst CSR has a negative score,
while the enterprises with the best social responsibility performance has a score of 75.37 [7].
The summary results of variable EPU shows that during the sample period, the minimum
EPU is 0.92, while the maximum degree is 2.07. Regarding to the control variables, the
standard deviations of the two variables Q and Dual are relatively large, which indicates
that Tobin’s Q value and the separation rate of management right and control right of each
sample enterprise are quite different.
Variable n Mean Std. Min 25% Median 75% Max
Economic
policy
CSR 19,102 25.01 17.39 4.44 15.74 21.70 28.13 75.37 uncertainty
EPU 19,102 1.26 0.35 0.92 1.06 1.22 1.29 2.07
ROE 19,102 0.06 0.12 0.64 0.03 0.07 0.11 0.41
Size 19,102 22.04 1.29 19.33 21.12 21.87 22.78 25.97
Leverage 19,102 0.45 0.22 0.05 0.27 0.44 0.61 0.97
Dual 19,102 4.91 7.64 0 0 0 8.57 28.80
Cash 19,102 0.19 0.14 0.01 0.09 0.15 0.24 0.66
Q 19,102 2.31 2.10 0.20 0.96 1.71 2.91 12.39
State 19,102 0.42 0.49 0 0 0 1 1
FC 19,102 0.50 0.50 0 0 1 1 1
Life 19,102 2.57 0.96 1 2 3 3 4
GDP 19,102 13.30 0.25 12.76 13.10 13.38 13.52 13.63

Notes: Table 2 presents the descriptive statistics of the full sample. The first three columns show the
sample size, mean value and standard deviation of each variable. The last five columns are the minimum Table 2.
value, 25% value, median value, 75% value and maximum value, respectively Summary statistics

Table 3 shows the results of the correlation analysis. The Spearman correlations are shown
above the diagonal while the Pearson correlations are shown below the diagonal. EPU is
significantly negatively relate to CSR, which coincides with our basic hypotheses. The
results also indicate no serious multicollinearity problem between each pair of variables.

5.2 Multivariate analysis

Table 4 presents the base results of Model (1) and Model (2). The results in Column (1) shows
that there is a significant negative effect of EPU on CSR and the results in Column (2)
suggests that compared to non-SOEs, the inhibitory role of EPU on CSR is more obvious for
SOEs, which support H1 and H2. Besides, the results of control variables show that
financial performance (ROE), firm size (Size), corporate governance (Dual), cash holdings
(Cash), investment opportunities (Q) and state ownership (State) are all positively related to
CSR, while financial leverage (Leverage) is negatively related to CSR, suggesting that lower
leverage companies have better CSR. These results are consistent with prior literature.

5.3 Endogeneity mitigation and robustness checks

To confirm the robustness and reliability of our results, we conduct the following robustness
checks. Firstly, following Wang et al. (2014) and Demir and Ersan (2017), we use the
geometric averaging method to calculate the annual EPU level, which is denoted as EPU2.
The results of Models (1) and (2) are shown in Table 5. After using the alternative
measurement for EPU, we find that all coefficients of the core explanatory variables are
consistent with those shown in Table 4. The results show that an increase in EPU will
reduce enterprise social responsibility behaviour and the inhibitory role is more prominent
for SOEs. Thus, our base results remain robust after using alternative measures of EPU.
Secondly, endogeneity problems may result from missing variables. To control for the
influence of firm-level heterogeneous factors, we adopt a fixed effects regression for panel
data and further control for firm-level fixed effects in our regression to mitigate the
endogeneity problem. The results are shown in Tables 6 and 7, respectively. After using
fixed effects regression for panel data or controlling for firm-level fixed effects, the
coefficients of EPU and EPU2 are significantly negative, qualitatively corroborating our
base results.
 Table 3.
SAMPJ

Correlation analysis
Variable CSR EPU ROE Size Leverage Dual Cash Q State FC Life GDP

CSR 1 0.0313*** 0.4745*** 0.2738*** 0.0679*** 0.0137* 0.1462*** 0.0469*** 0.0906*** 0.2316*** 0.0154** 0.1125***
EPU 0.1096*** 1 0.0455*** 0.0595*** 0.0298*** 0.0132* 0.0107 0.0920*** 0.0287*** 0.0000 0.0020 0.3163***
ROE 0.2749*** 0.0339*** 1 0.1409*** 0.0435*** 0.0206*** 0.1634*** 0.1416*** 0.0437*** 0.1371*** 0.0228*** 0.0622***
Size 0.2910*** 0.0833*** 0.1118*** 1 0.4533*** 0.0479*** 0.1982*** 0.6529*** 0.3263*** 0.8252*** 0.1489*** 0.1974***
Leverage 0.0101 0.0341*** 0.1299*** 0.4234*** 1 0.0629*** 0.3506*** 0.5715*** 0.3100*** 0.3976*** 0.1595*** 0.0883***
Dual 0.0540*** 0.0261*** 0.0360*** 0.0569*** 0.0641*** 1 0.0161** 0.0301*** 0.1436*** 0.0625*** 0.0118 0.0326***
Cash 0.0826*** 0.0293*** 0.1350*** 0.2150*** 0.3863*** 0.0322*** 1 0.2503*** 0.1305*** 0.1456*** 0.0881*** 0.0731***
Q 0.0748*** 0.0911*** 0.0773*** 0.5371*** 0.3699*** 0.0536*** 0.2222*** 1 0.3493*** 0.5555*** 0.1079*** 0.0631***
State 0.1370*** 0.0482*** 0.0490*** 0.3368*** 0.3066*** 0.0760*** 0.1377*** 0.2674*** 1 0.2562*** 0.0581*** 0.1322***
FC 0.2472*** 0.0000 0.1023*** 0.7504*** 0.3788*** 0.0864*** 0.1697*** 0.4357*** 0.2562*** 1 0.1239*** 0.0001
Life 0.0099 0.0024 0.0197*** 0.1383*** 0.1510*** 0.0105 0.1187*** 0.1014*** 0.0565*** 0.1195*** 1 0.0099
GDP 0.1994*** 0.4140*** 0.0383*** 0.1783*** 0.0994*** 0.0535*** 0.0859*** 0.0326*** 0.1425*** 0.0001 0.0107 1

Notes: Table 3 presents the correlation coefficients of the variables. The Spearman correlations are above the diagonal while the Pearson correlations are below
the diagonal. Definitions of the variables are presented in Table 1. ***, ** and * indicate 1, 5 and 10% significance, respectively
 (1) (2)
Economic
Variable CSR CSR policy
uncertainty
EPU 18.8571*** (18.3276) 17.9454*** (17.4730)
EPU*State 2.2727*** (4.5339)
ROE 24.0878*** (22.9848) 24.0920*** (23.0093)
Size 5.9283*** (34.1887) 5.9356*** (34.2332)
Leverage 13.4797*** (21.2146) 13.4827*** (21.2165)
Dual 0.0960*** (6.4310) 0.0973*** (6.5159)
Cash 4.5786*** (5.2391) 4.6883*** (5.3617)
Q 0.9794*** (14.2923) 0.9891*** (14.4355)
State 2.0202*** (7.6567) 4.8817*** (6.5699)
FC 0.2385 (0.7107) 0.2453 (0.7310)
Life 0.0040 (0.0358) 0.0006 (0.0058)
GDP 13.7238*** (5.7541) 13.8339*** (5.8007)
Year Control Control
Ind Control Control
Province Control Control
_cons 113.2359*** (3.5139) 113.2703*** (3.5150)
n 19,102 19,102
R2 (Within) 0.2567 0.2572
F 345.5406 324.4169

Notes: Table 4 presents the base results of the pooled OLS regression for the full sample panel data.
Column (1) shows the OLS regression result for Model (1) and Column (2) shows the moderating effect of
state ownership through Model (2), which both considered for year fixed effect, industry fixed effect,
province fixed effect and use the heteroskedastic-robust standard error in the OLS regression. T statistics in
parentheses. Definitions of the variables are presented in Table 1. ***, ** and * indicate 1, 5 and 10% Table 4.
significant, respectively Base results

Finally, we tried to use balanced panel data to reexamine the relationship between EPU and
CSR. The results are shown in Table 8. The results reveal that when applying balanced
panel data, the inhibitory effect of EPU on CSR remains, suggesting that our base result is
relatively robust.

5.4 Additional tests

5.4.1 The moderating effect of financial constraints. Prior studies have found a relatively
higher proportion of Chinese listed companies that experience financial constraints (Poncet
et al., 2010; Zhao and Xiao, 2019). It is generally believed that financial constraints greatly
prevent enterprises from fulfilling their social responsibility duties (Chan et al., 2017) and
become more pronounced with an increase in macroeconomic policy uncertainty (Choi et al.,
2018). In a period of high uncertainty in economic policies, enterprises facing severe
financial constraints should allocate their limited funds effectively and reduce the
unnecessary and risky investment of CSR. Therefore, the inhibitory effect of EPU on CSR
should be more obvious for enterprises facing greater financing constraints. Thus, in an
additional test, we further examine whether the impact of EPU on CSR varies with the
severity of financing constraints faced by enterprises.
Given that China’s SOEs face significantly fewer financial constraints than non-SOEs,
we divide the sample into four groups according to financial constraints and enterprises
state ownership and reexamine the influence of EPU on CSR in comparing the results of the
four groups. We first calculate the financial constraints of each firm-year observation.
SAMPJ (1) (2)
Variable CSR CSR

EPU2 18.8004*** (18.1798) 17.8337*** (17.2682)

EPU2*State 2.4436*** (4.5925)
ROE 24.0681*** (22.9736) 24.0724*** (22.9985)
Size 5.9233*** (34.1518) 5.9307*** (34.1979)
Leverage 13.4787*** (21.2136) 13.4797*** (21.2127)
Dual 0.0961*** (6.4326) 0.0974*** (6.5223)
Cash 4.5925*** (5.2537) 4.7062*** (5.3804)
Q 0.9783*** (14.2719) 0.9882*** (14.4178)
State 2.0180*** (7.6471) 5.0126*** (6.5666)
FC 0.2300 (0.6853) 0.2377 (0.7083)
Life 0.0023 (0.0207) 0.0027 (0.0235)
GDP 9.5440*** (3.9299) 9.6071*** (3.9557)
Year Control Control
Ind Control Control
Province Control Control
_cons 54.7329* (1.6761) 54.0929* (1.6562)
N 19,102 19,102
R2 (Within) 0.2565 0.2570
F 345.1723 324.0954
Table 5.
Notes: Table 5 presents a robustness test based on an alternative measure for EPU. EPU2 is calculated as
Alternative the geometric average of monthly EPU and divided by 100. Column (1) is the result for H1 and Column (2) is
measurement for the result for H2. T statistics in parentheses. Definitions of the variables are presented in Table 1. ***, **
EPU and * indicate 1, 5 and 10% significant, respectively

(1) (2)
Variable CSR CSR

EPU 19.0644*** (20.8528)

EPU2 19.0127*** (20.6550)
ROE 8.4642*** (9.4209) 8.4439*** (9.3963)
Size 3.8019*** (12.2713) 3.7758*** (12.1826)
Leverage 5.1850*** (5.3148) 5.1758*** (5.3039)
Dual 0.0161 (0.5639) 0.0155 (0.5438)
Cash 2.5570** (2.3433) 2.5753** (2.3596)
Q 0.9009*** (10.6182) 0.8974*** (10.5678)
State 1.8610** (2.1875) 1.8594** (2.1851)
FC 0.0465 (0.1063) 0.0716 (0.1633)
Life 0.1944* (1.7747) 0.1927* (1.7582)
GDP 11.0969*** (5.9999) 6.8478*** (3.6460)
Year Control Control
Ind Control Control
_cons 128.2722*** (5.1283) 69.2562*** (2.7502)
N 19,102 19,102
R2 (Within) 0.1598 0.1593
F 84.7344 84.4701
Table 6.
Notes: Table 6 presents a robustness test result that using fixed effect regression for panel data. Column
Fixed effect (1) is the regression result using EPU as the independent variable, while Column (2) is the regression result
regression for panel using EPU2 as the independent variable. T statistics in parentheses. Definitions of the variables are
data presented in Table 1. ***, ** and * indicate 1, 5 and 10% significant, respectively
 (1) (2)
Economic
Variable CSR CSR policy
uncertainty
EPU 19.0644*** (20.7202)
EPU2 19.0127*** (20.5175)
ROE 8.4642*** (8.8059) 8.4439*** (8.7864)
Size 3.8019*** (12.4566) 3.7758*** (12.3686)
Leverage 5.1850*** (5.1902) 5.1758*** (5.1804)
Dual 0.0161 (0.5496) 0.0155 (0.5300)
Cash 2.5570** (2.5613) 2.5753*** (2.5787)
Q 0.9009*** (11.1536) 0.8974*** (11.1066)
State 1.8610** (2.1118) 1.8594** (2.1095)
FC 0.0465 (0.1119) 0.0716 (0.1720)
Life 0.1944* (1.7723) 0.1927* (1.7554)
GDP 11.0969*** (6.0829) 6.8478*** (3.7057)
Firm Control Control
Year Control Control
Ind Control Control
Province Control Control
_cons 124.7863*** (5.0835) 65.7969*** (2.6681)
N 18,808 18,808
R2 (Within) 0.1576 0.1572
F 181.7272 181.4726

Notes: Table 7 presents a robustness test result that control for firm-level fixed effect. Column (1) is the
regression result using EPU as the independent variable, while Column (2) is the regression result using Table 7.
EPU2 as the independent variable. T statistics in parentheses. Definitions of the variables are presented in Control for firm-level
Table 1. ***, ** and * indicate 1, 5 and 10% significant, respectively fixed effect

Hadlock and Pierce (2010) proposed SA index, argues that the size and age of an enterprise
greatly determine an enterprise’s financial constraints. Following Hadlock and Pierce (2010),
we calculate the SA index to define financial constraints from equation (3):

SA ¼ 0:737 * Size þ 0:043 * Size2  0:040 * Age (3)

where Size is the natural log of total assets and Age is the number of years an enterprise has
been in operation. A higher SA value means that financial constraints are more pronounced.
Next, we calculate the median SA index for each fiscal year. Firms falling above the
annual median SA index value were considered more financially constrained firms with a
financial constraint (FC) value of 1; otherwise, a value of 0 was assigned. As a result, the full
sample was partitioned into the following four subsamples: more constrained SOEs, less
constrained SOEs, more constrained non-SOEs and less constrained non-SOEs. Then, we
rerun the regression for these four subsamples and compared the regression results. The
results are shown in Table 9.
Panel A of Table 9 shows that the inhibitory effect of EPU on CSR holds across all four
subsamples, but the extent of the impact varies. Then, we further statistically examined
whether differences in the impacts of EPU on CSR were statistically significant across the
four subsamples through the seemingly unrelated regressions (SUR) test. The results are
shown in Panels B to E. Panel B shows that the CSR of more constrained SOEs is more
heavily affected by EPU than that of less constrained SOEs and Panel C shows that the
CSR of more constrained non-SOEs is also more heavily affected by EPU than that of less
SAMPJ (1) (2)
Variable CSR CSR

EPU 27.6458*** (16.0010)

EPU2 27.4480*** (15.7922)

ROE 23.2534*** (14.4644) 23.2028*** (14.4376)
Size 6.2302*** (24.1713) 6.2282*** (24.1565)
Leverage 14.8546*** (13.8789) 14.8589*** (13.8798)
Dual 0.1471*** (6.1984) 0.1472*** (6.2025)
Cash 5.5927*** (3.2253) 5.5908*** (3.2230)
Q 1.2462*** (9.5229) 1.2452*** (9.5115)
State 1.7964*** (4.4245) 1.7952*** (4.4202)
FC 0.4724 (0.8203) 0.4761 (0.8264)
Life 0.0821 (0.4393) 0.0834 (0.4459)
GDP 14.5731*** (4.2647) 8.3374** (2.4156)
Year Control Control
Ind Control Control
Province Control Control
_cons 133.7456*** (2.8756) 46.1718 (0.9902)
N 8,487 8,487
R2 (Within) 0.2820 0.2816
F 207.6525 207.2488

Notes: Table 8 presents the results that using balanced panel data. Column (1) is the regression result
using EPU as the independent variable, while Column (2) is the regression result using EPU2 as the
Table 8. independent variable. T statistics in parentheses. Definitions of the variables are presented in Table 1. ***,
Balanced panel data ** and * indicate 1, 5 and 10% significant, respectively

constrained non-SOEs. These results indicate that for enterprises facing severe financial
constraints, EPU has a more obvious inhibiting effect on CSR. The results are shown in
Panels D and E reveal that SOEs facing more financial constraints are more vulnerable to
the impacts of EPU in undertaking CSR than non-SOEs and SOEs facing fewer financial
constraints are also more vulnerable to the impacts of EPU in undertaking CSR than non-
SOEs. These results are consistent with H2.
5.4.2 The effect of economic policy uncertainty on various dimensions of corporate social
responsibility. Generalized CSR has many dimensions, including responsibility to
shareholders, to employees, to suppliers, customers and consumer rights, to the environment
and to society, as well as corporate donations and CSR information disclosure and EPU
might have different impacts on various dimensions of CSR. Firstly, it is widely believed
that CSR is equivalent to ethics. Socially responsible firms expend effort and resources in
undertaking CSR activities to meet the ethical expectations of stakeholders. However,
various stakeholders may have conflicting expectations for enterprises, which also differ in
requirements in terms of enterprise resource expenditure. Therefore, whether EPU restrains
enterprises’ social responsibility across all stakeholders must be examined. Secondly, there
are differences between the quality of CSR information disclosure and CSR performance
(Cho et al., 2012). EPU affects CSR mainly by aggravating the deterioration of the corporate
information environment while CSR information disclosure may help to alleviate
information asymmetry to some extent (Gong et al., 2018). Therefore, how EPU influences
CSR disclosure deserves further tested. Thus, we further explore whether the impact of EPU
on CSR holds across various dimensions of CSR.
 State = 1 State = 0
Economic
FC = 1 FC = 0 FC = 1 FC = 0 policy
Variable (1) CSR (2) CSR (3) CSR (4) CSR uncertainty
Panel A
EPU 33.9464*** (13.6778) 14.6119*** (5.6129) 24.0798*** (10.8761) 7.3466*** (5.1420)
ROE 28.2558*** (13.3365) 13.2595*** (7.8795) 38.0021*** (14.2370) 17.3904*** (13.9750)
Size 6.1494*** (22.8144) 5.7348*** (9.4531) 6.1673*** (16.4821) 4.5708*** (14.9360)
Leverage 17.8918*** (10.1235) 10.5312*** (8.2011) 9.2851*** (5.6876) 8.9095*** (10.6495)
Dual 0.0968*** (3.0936) 0.0951** (2.4912) 0.1852*** (6.4127) 0.0153 (0.7332)
Cash 3.1301 (1.2992) 7.6502*** (3.4096) 2.8281 (1.3039) 8.3794*** (7.7470)
Q 2.6789*** (8.1752) 0.7646*** (4.2401) 1.3607*** (6.1620) 0.5178*** (6.3651)
Life 0.0866 (0.3263) 0.6515** (2.5135) 0.3973 (1.6092) 0.0204 (0.1367)
GDP 14.2977*** (3.1582) 15.7745*** (3.3631) 10.2126** (1.9985) 11.9346*** (3.9224)
Year Control Control Control Control
Ind Control Control Control Control
Province Control Control Control Control
_cons 133.2120** (2.1521) 134.0082** (2.0912) 65.0737 (0.9467) 99.0964** (2.3965)
N 5,229 2,811 4,324 6,738
Adj R2 0.3454 0.2450 0.3213 0.2058
F 45.4871 15.4730 34.0070 28.2735
Panel B
[FC1_State1_mean]EPU - [FC0_State1_mean]EPU = 0
test [FC1_State1_mean]EPU = [FC0_State1_mean]EPU
chi2(1) = 32.61 Prob > chi2 = 0.0000
Panel C
[FC1_State0_mean]EPU - [FC0_State0_mean]EPU = 0
test [FC1_State0_mean]EPU = [FC0_State0_mean]EPU
chi2(1) = 41.79 Prob > chi2 = 0.0000
Panel D
[FC1_State1_mean]EPU - [FC1_State0_mean]EPU = 0
test [FC1_State1_mean]EPU = [FC1_State0_mean]EPU
chi2(1) = 9.59 Prob > chi2 = 0.0020
Panel E
[FC0_State1_mean]EPU - [FC0_State0_mean]EPU = 0
test [FC0_State1_mean]EPU = [FC0_State0_mean]EPU
chi2(1) = 6.58 Prob > chi2 = 0.0103

Notes: Table 9 presents an additional test result based on the moderating role of financial constraints. We
compare the impact of EPU on enterprises’ social responsible behavior among higher-constrained SOEs,
lower-constrained SOEs, higher-constrained non-SOEs and lower-constrained non-SOEs. Panel A shows the
regression results for the four groups and Panel B to Panel E compare the significance of the differences Table 9.
through SUR tests. T statistics in parentheses. Definitions of the variables are presented in Table 1. ***, ** Additional tests:
and * indicate 1, 5 and 10% significant, respectively financial constraints

We obtain components of CSR data through Hexun’s scoring system, which covers
enterprises’ responsibility to shareholders, to employees, to suppliers, customers and
consumer rights, to the environment and to society. Enterprise donation data were drawn
from the CSMAR database and CSR information disclosure quality data were taken from
Rankings (RKS) [8]. The results are shown in Table 10. Panel A of Table 10 shows that the
coefficients of EPU are significantly negative in all five columns, suggesting that EPU could
significantly reduce CSR for almost all stakeholders, including shareholders, employees,
 SAMPJ

Table 10.
Additional tests:
EPU and various
dimensions of CSR
(1) (2) (3) (4) (5)
Shareholders Employees Suppliers, customers and consumer right Environment Society

Panel A
EPU 0.9565** (2.5465) 3.9367*** (18.2489) 6.7856*** (20.9842) 6.3709*** (19.0596) 0.7171*** (2.6559)
ROE 16.4606*** (32.2392) 0.9536*** (5.1632) 1.7733*** (7.0508) 1.1296*** (3.8582) 3.6717*** (13.0947)
Size 1.6401*** (30.1312) 0.9719*** (26.8065) 1.3158*** (24.3090) 1.4910*** (24.4077) 0.5027*** (12.0971)
Leverage 8.7197*** (32.0902) 0.7121*** (6.0172) 1.5464*** (8.8763) 1.6916*** (8.8802) 0.7628*** (4.1481)
Dual 0.0229*** (4.5447) 0.0154*** (5.1803) 0.0241*** (5.2160) 0.0171*** (3.4159) 0.0157*** (4.3036)
Cash 5.6805*** (17.1881) 0.2337 (1.3413) 1.1357*** (4.2406) 1.5394*** (5.4368) 1.8777*** (7.8344)
Q 0.2252*** (7.7675) 0.2194*** (16.7698) 0.2633*** (12.9169) 0.2653*** (13.1442) 0.0098 (0.4987)
State 0.1873** (2.0104) 0.7435*** (13.9876) 0.5170*** (6.4661) 0.7999*** (9.4312) 0.1514** (2.1448)
FC 0.0448 (0.3783) 0.0566 (0.8339) 0.0227 (0.2192) 0.1192 (1.0837) 0.1025 (1.1976)
Life 0.0669 (1.5130) 0.0437* (1.9581) 0.0060 (0.1864) 0.0079 (0.2296) 0.0948*** (2.8899)
GDP 2.4844*** (3.4609) 3.2138*** (6.5268) 3.3084*** (4.4319) 4.0702*** (4.9035) 0.4803 (0.8135)
Year Control Control Control Control Control
Ind Control Control Control Control Control
Province Control Control Control Control Control
_cons 13.7164 (1.4056) 31.2997*** (4.7108) 29.5404*** (2.9292) 35.3323*** (3.1652) 0.9916 (0.1247)
N 19,102 19,102 19,102 19,102 19,102
R2 (Within) 0.2950 0.1913 0.1815 0.1855 0.0497
F 344.4031 245.3329 255.0266 228.6678 56.2849

(continued)
Panel B
(1) (2)
CSR_RKS CSR_Donation
EPU 1.9075*** (2.9256) 0.4386** (2.0760)
ROE 0.6016 (0.6370) 0.2793** (2.0203)
Size 1.7174*** (4.6476) 0.0801*** (4.2898)
Leverage 0.5646 (0.5226) 0.0884 (0.6694)
Dual 0.0005 (0.0203) 0.0008 (0.5424)
Cash 0.5380 (0.4716) 0.1189 (0.9669)
Q 0.0464 (0.5286) 0.0115 (0.9686)
State 0.2796 (0.3610) 0.0122 (0.4533)
FC 0.6985* (1.6849) 0.1223** (2.4452)
Life 0.0749 (0.8203) 0.0308** (2.0355)
GDP 15.5638*** (9.2189) 0.2953 (1.1811)
Year Control Control
Ind Control Control
Province Control Control
_cons 205.2343*** (9.4529) 2.8356 (0.7966)
n 4,957 1,757
R2 (Within) 0.3253 0.0282
F 101.5490 3.5301

Notes: Table 10 presents an additional test result based on various dimensions of CSR. Panel A Column (1) to Column (5) are the results of EPU influencing
enterprises’ responsibility to shareholders, to employees, to suppliers, customers and consumer right, to environment and to the society, respectively. Panel B
shows the results of EPU affecting the CSR report quality that enterprises disclosed and corporate donation. T statistics in parentheses. Definitions of the
variables are presented in Table 1. ***, ** and * indicate 1, 5 and 10% significant, respectively
policy
uncertainty

Table 10.
Economic
SAMPJ suppliers, customers and consumers, as well as in terms of responsibility to the environment
and to society. The results reveal that EPU has a considerably negative impact on
enterprises, leading to a reduction of all forms of CSR activity. Panel B Column (1) shows
that among the enterprises disclosing a CSR report during the sample period, the quality of
the report is significantly negatively correlated with EPU. Nagar et al. (2019) find that the
increased voluntary disclosure of 8-K filings during periods of high EPU can only partly
alleviate the negative impact of EPU on information asymmetry. Our results extend Nagar
et al.’s (2019) finding that managers pay little attention to CSR disclosure for the purpose of
impression management or to send positive signals. The results shown in Panel B Column
(2) suggest that corporate donations, as a typical CSR activity, are significantly influenced
by EPU as well. The overall results show that the relationship between EPU and firms’ CSR
engagement is significantly negative, which is consistent with our base results.
5.4.3 The effect of trade policy uncertainty on corporate social responsibility. As Chinese
TPU has experienced considerable growth over the past two years, we draw a line chart for
Chinese TPU for 2000 to 2018 (shown in Figure 1).
Figure 1 shows that China’s TPU has steadily increased since 2000 with an apparent
peak in 2017 and 2018 that may be due to trade wars. The rising trend line raises questions
surrounding how TPU influences enterprises’ social responsibility? Thus, we further
examine the relationship between TPU and CSR. Data on TPU are obtained from the same
source as that used for EPU data and the results are shown in Table 11. Independent
variable TPU in the first column is calculated through the arithmetic averaging method,
independent variable TPU2 in the second column is calculated through the geometric
averaging method and both TPU and TPU2 are divided by 100 to maintain orders of
magnitude. The results are shown in Columns (1) and (2) of Table 11 reveal that more TPU
will reduce enterprises’ social responsibility behaviours. Therefore, the influence of TPU on
CSR is similar to that of EPU.

6. Conclusion and discussion

In view of macroeconomic fluctuations observed in recent years, macroeconomic policy
uncertainty has increased. How macroeconomic policy uncertainty affects microenterprises’
decision-making has thus become a focus of scholarly interest. Prior literature mainly
focused on the impact of EPU on cash holdings (Demir and Ersan, 2017), investment
decisions (Julio and Yook, 2012), dividend payments (Huang et al., 2015), asset pricing
(Brogaard and Detzel, 2015; Kaviani et al., 2017; Liu et al., 2017), capital structures (Zhang
et al., 2015) and stock prices (Pastor and Veronesi, 2012) while ignoring the impact on
enterprises’ non-financial decisions and especially their CSR decisions. CSR is an important
area that the Chinese Government and society as a whole have paid increasing attention to
in recent years and might be greatly influenced by macroeconomic policies.
Based on information asymmetry theory, this paper presents a theoretical analysis on
how EPU increases enterprise information asymmetry and on how poor information
environments lead to cautious management decision-making, especially surrounding CSR
decisions. In addition, we further empirically examine how EPU influences CSR behaviour
and how this effect varies between SOEs and non-SOEs.
For a sample of Chinese A-share listed enterprises publicly traded on the SSE and SZSE
from 2010 to 2018, this study finds that an increase in EPU restrains enterprises’ social
responsibility behaviour. In addition, compared to non-SOEs, the inhibitory effect of EPU on
CSR is more pronounced for SOEs. Further analysis shows that the inhibitory effect of EPU
on CSR is stronger for enterprises that face severe financial constraints, that this inhibitory
effect holds across various dimensions of CSR and that TPU can also curb CSR. The
 Economic
policy
uncertainty

Figure 1.
Chinese TPU from
2000 to 2018
SAMPJ (1) (2)
Variable CSR CSR

TPU 14.3998*** (17.7746)

TPU2 6.3394*** (9.4570)
ROE 24.1171*** (23.0042) 23.5261*** (22.4857)
Size 5.9105*** (34.0500) 5.9551*** (34.0700)
Leverage 13.4597*** (21.1733) 13.3992*** (21.0208)
Dual 0.0962*** (6.4400) 0.0969*** (6.4479)
Cash 4.7485*** (5.4284) 4.4908*** (5.1096)
Q 0.9782*** (14.2628) 1.0642*** (15.5712)
State 2.0264*** (7.6749) 2.0251*** (7.6205)
FC 0.2107 (0.6273) 0.1572 (0.4655)
Life 0.0144 (0.1276) 0.0063 (0.0557)
GDP 1.9060 (0.7456) 0.4139 (0.1435)
Year Control Control
Ind Control Control
Province Control Control
_cons 44.5692 (1.3110) 102.5964*** (2.6814)
N 19,102 19,102
R2 (Within) 0.2557 0.2489
F 344.0974 328.2468

Notes: Table 11 presents an additional test result of the impact of trade policy uncertainty (TPU) on CSR.
Column (1) shows the result of TPU (which is calculated as the arithmetic average of monthly TPU) and
Table 11. CSR, while Column (2) shows the result of TPU2 (which is calculated as the geometric average of monthly
Additional tests: TPU) and CSR. T statistics in parentheses. Definitions of the variables are presented in Table 1. ***, ** and
TPU and CSR * indicate 1, 5 and 10% significant, respectively

findings remain intact after applying alternative measures of EPU and taking endogeneity
issues into consideration.
This paper extends the application of information asymmetry theory to the macroeconomic
environment affecting microenterprise behaviour. Our focus on EPU and CSR extends the
literature on the relationship between EPU and corporate investment (Bernanke, 1983; Bloom,
2009; Gulen and Ion, 2016) by addressing the particularities of CSR investment from the
stakeholder’s perspective, as well as the development of CSR in China. In addition, our findings
complement Nagar et al.’s (2019) by showing that when facing EPU, although enterprises hope
to release positive signals through more voluntary information disclosure to alleviate
information asymmetry, enterprises are unwilling to actively fulfil their social responsibilities
[9]. As a form of corporate investment, CSR is irreversible (Gulen and Ion, 2016). Given the
relatively conservative nature of Chinese culture, management is more inclined to adopt the
precautionary delay strategy (the wait-and-see strategy) in prioritizing the stability of the
enterprise’s short-term financial performance and reducing CSR inputs with higher risks to
avoid greater losses to the enterprise.
Our findings allow us to identify possible beneficial actions for Chinese regulators and
policymakers, as well as enterprise managers. CSRC should formulate appropriate social
responsibility guidance, especially when experiencing higher levels of macroeconomic
volatility. Our findings linking EPU to CSR may therefore help policymakers better understand
the implications of policy stability for enterprises’ financial and non-financial decisions.
Enterprises should not fulfil their social responsibility duties blindly. Management should
develop appropriate social responsibility strategies in accordance with macroeconomic policy.
Especially when EPU increases, CSR should be accompanied by core business development Economic
and long-term stability maintenance. To enterprises seeking to achieve their long-term financial policy
goals, fulfilling the social responsibility requirements of various stakeholders is very important
and necessary at all times.
uncertainty
This study has some limitations. Due to data limitations, our EPU measurements may not
be accurate. The news-based method proposed by Baker et al. (2016) estimates EPU through
keyword searches, which poses limitations due to the possibility of unreported issues or the use
of vague words. However, while the measurement of policy uncertainty currently poses
research difficulties in its current stage of development, this approach is widely used in related
studies. Thus, we use it as a proxy for EPU in our research. There is still considerable room for
future research addressing problems of variable measurement or identifying better proxies.

Notes
1. Although there are some similarities between CSR investment and R&D investment, including
high upfront investment costs, negative impacts on enterprise performance over the short term,
and considerable uncertainty in future earnings, the two types of investment indeed show
significant differences in terms of necessity, importance and outcomes.
2. The website of Hexun is http://www.hexun.com
3. According to stock listing rules implemented in 1998, the stocks of listed companies with
abnormal financial conditions would receive “special treatment”, hence the name “ST shares”.
4. The Chinese monthly EPU index constructed by Baker et al. (2016) was drawn from www.
policyuncertainty.com/china_monthly.html
5. As the EPU index is the same for every firm i in year t, we create dummies for every two
subsequent years to control for the year fixed effect.
6. Data for the province in which an enterprise is registered were drawn from the CSMAR database.
7. According to Hexun’s evaluation system, an enterprise could obtain a negative score if the value
of CSR concerns exceeds that of CSR strengths.
8. Rankings (RKS) is a leading third-party agency in the field of CSR in China and was founded in 2007.
Over the past decade, RKS independently developed the first CSR report rating system for listed
companies in China, which scores and evaluates the CSR reports issued by enterprises.
9. Nagar et al. (2019) show that additional disclosures only partly offset the increase in information
asymmetry due to EPU, suggesting that EPU indeed has a considerably negative impact on the
information environments of enterprises. Thus, our finding that a reduction in CSR by
enterprises under the influence of EPU is consistent with the prior literature.

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SAMPJ Appendix

Cash flow type Initial Growth Mature Declining

Table A1.
Partition life cycle Operating  þ þ þ  
stage according to Investing    þ þ 
cashflow patterns Financing þ þ  þ/ þ/ 

About the authors

Tianjiao Zhao (1992-), PhD in management, a Lecturer in School of Economics and Management,
University of Science and Technology Beijing. Research area: corporate finance and CSR. Tianjiao
Zhao is the corresponding author and can be contacted at: zhaotj@ustb.edu.cn
Xiang Xiao (1970-), PhD in economy, a Professor in School of Economics and Management, Beijing
Jiaotong University. Research area: macro economy and capital market.
Bingshi Zhang (1990-), PhD in management, a Researcher in State Grid Energy Research Institute
Co., Ltd. Research area: corporate governance.

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