Research has argued that state-owned enterprises (SOEs) should bear more social responsibility than other listed firms, because their own goals include maintaining social stability and promoting social welfare. In contrast with the privatization of SOEs observed in other countries, in China, some listed firms’ major shareholders have become SOEs in recent years. This transition offers a good opportunity to investigate the impact of ownership change on firms’ corporate social responsibility (CSR). Using the propensity score matching difference-in-differences method, we document that the CSR performance of these firms does not improve when their ownership structure changes, and it can even worsen. Our results remain robust to a series of tests. Further investigating the underlying economic mechanism, we uncover those political connections, bank financing, and government subsidies play critical roles in determining the negative effect of ownership structure change on public firms, which is consistent with the soft budget constraint framework. In an additional analysis, we find that CSR performance is poor for manufacturing industry firms after ownership structure change. After calculating the frequency of keywords appearing in the annual reports of such firms, we find them to be satisfied with their new SOE background after ownership structure change. Our paper provides a possible explanation for the phenomenon of SOEs becoming major shareholder of listed firms.

Using an extensive panel of Chinese firms from the Annual Tax Survey and relying on labor unrest as shock to local social stability, we show that state-owned enterprises (SOEs) react to nearby labor unrest by creating additional employment at the expense of firm performance. Each SOE exposed to unrest hires 3% more employees, which is a sizeable aggregated effect. This effect is larger when labor unrest occurs in the same industry as the exposed SOEs, when local governments have sound fiscal budgets, and when governing mayors have stronger promotion incentives. SOEs obtain more fiscal benefits when they absorb additional labor. In contrast, non-SOEs do not react to labor unrest, and their performance is unaffected. Similar effects are detected when we use the population of Chinese listed firms. This paper provides evidence that SOEs internalize the goal of maintaining social stability and contribute to the growth of the non-state sector.