GUILT AND CORPORATE PHILANTHROPY: THE CASE OF THE PRIVATIZATION IN CHINA

Firms' harm-inflicting decisions/actions can make firm leaders feel guilt toward those who are harmed, which then motivates them to make restitution through corporate philanthropy. Our primary setting for investigating this proposition is the privatization of Chinese firms. We argue that massive layoffs resulting from privatization triggered guilt among firm leaders to drive corporate philanthropy. The analysis of a national survey of Chinese private firms shows that on average privatized firms made approximately 26% more charitable contributions than firms founded as private. This was particularly the case when (a) privatization resulted in layoffs (vs. no layoffs), (b) the firms' provinces experienced greater unemployment at the time of privatization, (c) the firms' leaders were directly involved in privatization, (d) the influence of Confucianism was stronger in their provinces, and (e) firm leaders had stronger ties with laid-off workers. An interview-based field study of 25 firm leaders involved in privatization provides qualitative evidence of the influence of guilt on privatized firms' philanthropy. Finally, a vignette experiment conducted on EMBA students shows the mediation of guilt between privatization and firms' philanthropic intention. These findings establish guilt as a potent emotional driver of corporate philanthropy, helping redirect the attention of corporate philanthropy research toward nonfinancial drivers.