Does a Founder's Cultural Imprint Affect ESG Performance? An Analysis from Environmental and Social Perspectives

Abstract

This study examines the effect of a founder’s cultural imprint on firm ESG performance. I conjecture that areas with frequent flooding disasters like flood regions along the Yellow River cultivate unique culture and contribute to shaping residents’ special personality. Using the historical record of floods in each province at the county level from the China Meteorological Disaster Report, I find that founder’s cultural imprint of frequent floods is associated with better ESG performance.

These results suggest that the frequent floods left a strong imprint on the collective memories of people in affected areas over generations, making them more sensitive to environmental protection and climate change issues, and pay more attention to cooperation and social responsibility. Further analyses indicate that firms whose founders with cultural imprint of frequent floods are associated with better internal control and more family-member directors and officers, contributing to improvements in both overall ESG and environmental performance. Cross-sectional analyses suggest that the impact of cultural imprint from frequent floods is more pronounced for founders without political connections and founders who established firms in their hometown.

From the social responsibility perspective, I further explore how the cultural imprint of frequent floods influences founders’ tax avoidance and donation behaviors. I find that firms with founders whose birthplace was a frequently flooded areas are less likely to engage in tax avoidance and more likely to participate in corporate donations. For tax avoidance, cross-sectional analyses indicate that political connections enhance the influence of cultural imprints from frequent floods, further reducing tax avoidance behaviors. Additionally, a strong connection to their hometowns intensifies the cultural imprint of frequent floods on founders, leading to a more significant reduction in socially irresponsible behaviors such as tax avoidance. For corporate donations, the effect of founder’s cultural imprint is more significant for founders without political connections and those who established firms in their hometowns.

Date of Award	18 Dec 2024
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Christian Simon PAPARCURI (Supervisor) & Lai Lan Phyllis MO (Co-supervisor)