Firm-government social exchange: Are venture firms more charitable after receiving government subsidy?

Research has suggested that firms in emerging economies often engage in philanthropy to secure political legitimacy. A natural follow-up question is whether a firm becomes less charitable after it gains political legitimacy. We draw on the social exchange perspective to posit that firms gaining greater political legitimacy, as indicated by the amount of government subsidy they received, tend to donate more to pay back the favour. In addition, this effect becomes stronger when the leadership in either the firms or local government changes, but such positive moderation effects become weaker when the leadership in both parties changes in the same year. Analysing a sample of venture firms publicly listed on China’s Growth Enterprises Market board from 2009 to 2017, we found support for the ideas.