The impact of Corporate Social Responsibility on the enterprise value of China’s listed coal enterprises

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Original article

The impact of corporate social responsibility on the enterprise value of China’s listed coal enterprises Yixin Zhanga, Maozhong Cuib,* a b

School of Management, Heilongjiang University of Science and Technology, Harbin, Heilongjiang, 150022, PR China School of Economics and Management, Shanghai Ocean University, Shanghai, 201306, PR China

A R T I C LE I N FO

A B S T R A C T

Keywords: New institutional environment Social responsibility Enterprise value

With the transition of China’s stage of economic development, enterprises are increasingly evaluated against their social and environmental contributions rather than the previous requirements related to business performance, and growing attention has been paid to corporate social responsibility (CSR). As the most representative industry troubled with high pollution and excess capacity, the coal industry bears inescapable social responsibility. New institutional requirements have been imposed by the government pertaining to supply-side reform and ecological conservation; therefore, this study analyses how well listed coal enterprises (LCEs) have fulfilled their social responsibility and what effect such attempts could have on these enterprises. Based on the analysis of theory and evidence pertinent to the CSR of coal enterprises, this study further conducts an empirical test on the impacts of an LCE’s responsibility to reduce capacity and CSR regarding environmental protection and safe production on enterprise value. The results show that CSR pertaining to a reduction in the supply capacity and environmental protection has a significant positive effect on the increase in enterprise value. This study offers another perspective on China's experience that might be beneficial for other countries.

1. Introduction In China, coal accounts for more than 90 % of primary energy sources, and its consumption accounts for over 70 % of total primary energy consumption (Hao et al., 2017). The characterization of China as a coal-abundant but oil-and-gas-deficient country indicates that the dominant position of coal in the primary energy market will remain unchanged in the long run. However, despite being an important source of energy, the coal industry has experienced “roller-coaster” economic changes during the past decade. The years between 2002 and 2012 marked a “golden decade” for China’s coal industry. Both the production and consumption of coal reached their peaks in 2013. However, as China’s economic growth is experiencing a turning point, the production and sales volume of coal, as well as the profitability of coal enterprises, are beginning to fall. Due to a severe contraction in coal sales, the benchmark 5500 Kcal/kg net as received (NAR) thermal coal traded at Qinhuangdao dropped to 370 yuan/ton in 2015 from 775 yuan/ton in 2012, harming the profitability of the entire coal industry. To relieve market pressure and ensure the sustainable utilization of coal resources, the Chinese government proposed supply-side structural reform in 2015 that prioritized “de-capacity”. The coal industry, a typical industry with serious overcapacity, was listed as one of the key pilot reform

⁎

industries. The early and mid-period of China’s industrialization had seen relatively loose government regulation and supervision over the coal industry, given consideration of the considerable energy needs arising from rapid economic growth. Driven by economic interests, coal enterprises were engaged in serious and substantial exploitation behaviour with little consideration given to environmental protection and safe production in mining areas (Yang and Peter, 2019). The transition of the mode of economic growth from “extensive” towards “intensive” in recent years has prompted a call from the government and public for coal enterprises to engage in greater social responsibility. Measures such as the proposition of supply-side structural reform and amendments to the Environmental Protection Law, Environmental Protection Tax Law and Administrative Regulations on Safe Production of Coal have all but reflected a strong, widespread public appeal that coal enterprises should enhance their social responsibility while ensuring a rational level of profitability and sharing the wealth of resources with the public (Zeng and Zhan, 2015). The government has engaged in supply-side reform and issued new institutional requirements for ecological conservation; therefore, this paper focuses on how listed coal enterprises (LCEs) engage in corporate social responsibility (CSR), how they make choices between CSR and

Corresponding author. E-mail address: [email protected] (M. Cui).

https://doi.org/10.1016/j.exis.2019.11.010 Received 23 August 2019; Received in revised form 14 November 2019; Accepted 14 November 2019 2214-790X/ © 2019 Elsevier Ltd. All rights reserved.

Please cite this article as: Yixin Zhang and Maozhong Cui, The Extractive Industries and Society, https://doi.org/10.1016/j.exis.2019.11.010

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limited. Under the institutional environment of supply-side structural reform and ecological social construction, there is no relevant empirical research on the impact of coal enterprises' fulfilment of new social responsibilities on enterprise value.

enterprise value and whether the relationship between CSR and enterprise value is contradictory or interdependent. In addition, this study addresses a whole range of other questions, including how effective supply-side reform was in China’s coal industry, what effects coal mining companies’ practices of social responsibility could have on their enterprise value, whether supply-side reform could reduce the risk of market failure and whether the reduction in the supply of coal products causes prices to rise. Starting with a brief account of the new institutional environment, this paper presents a review of the relevant literature and an overview of its findings, followed by a theoretical discussion of the relationship between CSR and enterprise value. This paper further proposes several hypotheses regarding how CSR affects enterprise value in the new institutional environment. These hypotheses are subsequently tested using empirical data. New findings are derived from the tests.

3. Theoretical analysis 3.1. Research on the relationship between CSR and enterprise value CSR generally refers to the responsibility of an enterprise to satisfy the basic needs of stakeholders as well as environmental protection and other social needs while making a profit. Enterprise value is considered to be the aggregate of the tangible and intangible assets of an enterprise (Wang, 2014). Enterprise value is usually classified into two categories: the book value, that is, the net value of the enterprise reflected in its financial statements, and the intrinsic value, which usually refers to the evaluation of market experts regarding the future development of the enterprise (Wan and Liu, 2013; Huang and He, 2017; Tu and Zheng, 2018). Based on existing theory (Sandra, 2009; Margolis et al., 2009; Wang, 2014; Huang and He, 2017; Tu and Zheng, 2018), this paper asserts that CSR increases the trust of stakeholders and society towards the enterprise, thereby promoting its value. From the perspective of government relations, positive CSR behaviours reduce negative regulation and control (Hillman and Keim, 2001). In terms of employment relations, enterprises with high awareness of CSR tend to have employees who exhibit higher levels of loyalty, creating an advantageous condition for enterprises to attract, retain and incentivize outstanding employees and thus increase enterprises’ productivity and profitability (Turban and Greening, 1997). From the perspective of customer relations, active engagement in CSR helps enterprises attract highly sensitive customers and differentiate their products and services, thereby boosting customers’ willingness to purchase the products and services (Jones, 1995). From the perspective of investor relations, active engagement in CSR activities helps enterprises attract investors with greater awareness of social responsibility and obtain more social capital and resources. In addition, enterprises that actively engage in CSR tend to receive more local tax exemptions or the privilege to use public facilities for free (Barnett and Salomon, 2006). As China’s economic growth is transitioning towards a new mode and phase, LCEs, while ensuring energy supply, should take on other responsibilities such as economic sustainability, environmental protection and safe production. With respect to the directionality of the relationship between CSR and enterprise value, numerous meta-analyses of a large body of the literature have found that enterprises engaging in CSR tend to see an increase in financial performance; that is, enterprises with better CSR performance are in a position to reap higher profits. However, the argument proposed by proponents of resource slack theory, stating that high-performing enterprises may have more slack resources that are able to provide a favourable condition for enterprises to engage in social services, has not be significantly supported by the results of metaanalyses. That is, inverse causality is not supported by tests (Margolis et al., 2009; Wang, 2014).

2. Literature review In past decades, the debate on the relationship between CSR and enterprise value has long been a primary topic in normative research on CSR theories (Davis, 1960; Stanwick and Stanwick, 1998; Wang, 2017). Sheldon (1924), a British scholar who was considered the first to connect businesses to social responsibility, asserted that, from a moral point of view, as a part of their business operations, enterprises should meet different levels of needs of people and highlighted the social responsibility of enterprises. It was not until Carroll (1999) proposed the classic pyramid of CSR and Elkington (1998) developed the “triple bottom line” principles that CSR theories reached their maturity. Social responsibility requires enterprises not only to satisfy stakeholders’ expectations but also to constantly increase their awareness of issues related to the community and environment (Caitlin, 2015). Mature CSR research provided guidance for enterprises to undertake social responsibility, but the high cost arising from increased CSR discouraged them from doing so. Mixed findings have been obtained from research on the relationship between CSR and enterprise value, depending on the differences in the nature of the corporations and influencing factors. Those who favour a positive correlation between CSR and enterprise value include Sandra (2009); Margolis et al. (2009) and Wang (2014). Based on stakeholder, resource-based and reputation theories, these scholars further argued that exercising CSR leads to the satisfaction of stakeholders’ needs, thereby giving rise to heterogeneous resources and reputation capital. After analysing the results of 167 papers, Margolis et al. (2009) found that the majority of studies have demonstrated a positive CSRenterprise value relationship. By carrying out a meta-analysis of 119 effect sizes obtained from 42 authoritative papers published between 2003 and 2012, Wang (2014) found that there was a general positive correlation between CSR and corporate financial performance. Scholars asserting a negative correlation between CSR and enterprise value, including Barnett (2007); Wan and Liu (2013) and Lins et al. (2017), based their studies mainly on a cost perspective and principal-agent theory, stating that exercising CSR could lead to an increase in direct and agency costs. Based on their own empirical data, McWilliams and Siegel (2000); Dou (2015); Tang and Yang (2018) and other scholars concluded that CSR was not correlated with enterprise value. In general, although the past 4 decades have seen a vast number of scholars conducting empirical tests on the relationship between CSR and enterprise value since the pioneering work of Bragdon and Marlin (1972), no consistent conclusion has yet been drawn in academia. In the meantime, due to the particularity of coal enterprises and a relatively lower degree of annual CSR disclosure over the past years, studies focusing on the responsibility of coal enterprises to engage in environmental protection and safety are less extensive than studies focusing on other aspects, and research on social responsibility in the coal industry has also drawn less interest than other industries. Therefore, the number of existing studies focusing on the CSR of coal enterprises is

3.2. Proposed hypotheses Recently, China’s coal industry has shifted from “structural overproduction but long-term nationwide insufficiency in aggregated coal” towards “structural insufficiency but long-term nationwide excess of aggregated coal”. According to statistics published by the China National Coal Association, the capacity utilization rate of China’s coal industry was only 68.2 % at the end of 2017, which is lower than the national standard of 85 % (China National Coal Association, 2017). The low capacity utilization rate and insufficiency of high-quality capacity represent major issues that need to be addressed by supply-side reform of the coal industry. Alongside supply-side structural reform policy, the 2

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changing. They are more inclined to select enterprises assuming greater environmental protection responsibilities and are willing to pay premium prices for novel products. This also means that, in both the short and long term, reputational capital can compensate for expenditures related to environmental protection. Coal enterprises’ inputs into environmental protection will lead to the development of innovative coal products and the recycling of coal resources but, to a greater extent, also increase the value of coal enterprises. Therefore, this paper proposes Hypothesis 2.

Chinese government proposed a policy of accelerating the construction of an ecological society in 2015, which attracted unprecedented attention to human living conditions. The new social environment and associated expectations are calling for coal enterprises to shoulder their social responsibilities. 3.2.1. Responsibilities pertinent to the policies of supply-side reform China’s coal industry has generally been in a deficit since 2012. Stagnant sales in a saturated coal market and a disturbed market order caused by the disorderly supply of poor-quality capacity by low-cost, small coal mines contributed to the overall price drop in the coal market. Implementing supply-side structural reform was intended to eliminate poor-quality capacity and reduce excess capacity to decrease the supply of the coal market and thus adjust supply and demand to bring the market back to a balanced status. However, the ultimate goal of coal enterprises, as economic actors, is to make profits and increase their market values. De-capacity involves reducing the production of large coal enterprises and forcing the shutdown of smaller ones, which may instinctively provoke resistance among coal mining companies. Can the economic benefits resulting from the balance of supply and demand and an increase in prices offset the losses arising from production cuts? The Chinese market has no overall shortage of products, but there is a shortage of high-quality products. Eliminating backward capacity and shutting down all small-sized coal mines with a yearly production lower than 300,000 tons improves the overall level of economies of scale on the supply side. In the meantime, massive capacity reduction improves market expectations and thus facilitates a price rally and contributes to recovering the overall profits in the coal industry, ultimately leading to a Pareto improvement of the overall effect. Fulfilling their responsibilities regarding de-capacity on the supply side allows coal enterprises to eliminate backward capacity that has long troubled the industry and optimize the industrial structure, and at the microscopic level, it forces enterprises to improve product quality to meet the increasing needs of society. In addition, these outcomes improve market expectations regarding business operations and help enterprises gain more favourable market responses (increased investment), ultimately increasing the economic benefits of LCEs. As such, this paper proposes Hypothesis 1.

H2. Engaging in environmental protection helps LCEs improve their enterprise value. 3.2.3. Social responsibility pertinent to safe production The coal industry has long been listed as a high-risk industry due to the particularity of production. Constrained by less advanced technologies, China’s coal industry has been widely criticized for unsafe production processes. The safety problem is arguably an inescapable “nightmare” for China’s coal enterprises. Although China’s current death rate per million tons of coal has dropped to 0.093 in 2018 from 9.713 in 1978, making it roughly close to the world’s average level (China National Coal Association, 2017), there is still a very large gap that needs to be addressed to fulfil the goal of high-quality development proposed by the Chinese government. From the stakeholders’ perspective, Maslow’s hierarchy of needs indicates that physiological and safety needs are the most fundamental human needs. The inability to meet employees’ basic needs or ensure their fundamental safety causes employees to have a reduced sense of belonging and causes them to have negative sentiments towards production, which would reduce productivity. In the meantime, the “blood-soaked” industrial image undermines the reputations of corporations and has an indirect influence on the values assigned by social investors. In contrast, from the perspective of motivation theory, the motivation of employees will naturally increase if coal enterprises strive to create a safe work environment by putting more emphasis on safe production and increasing the inputs into safe production, which increases productivity and ultimately increases enterprise value. In addition, a good reputation arising from the implementation of safe production not only draws the attention of investors, but to a greater extent, it also helps enterprises recruit more highly educated talent who bring about more innovation opportunities and further contribute to an increase in enterprise value. Thus, this paper proposes Hypothesis 3.

H1. Implementing CSR associated with supply-side reform helps LCEs improve their enterprise value. 3.2.2. Social responsibility pertinent to environmental protection According to the Porter hypothesis, environmental regulations bring about “innovation compensation” and “first-mover advantages”, which drive enterprises to innovate, improve productivity and create new value (Porter and Van, 1995). Related research has shown that enterprises engaged in environmental protection are more likely to increase their enterprise value (Al-Tuwaijri et al., 2014; Singh et al., 2014; Yang, 2018). That is, because enterprises must use resources for environmental protection, they are more likely to engage in technological innovation, as well as in industrial optimization and upgrading, activities that yield “innovation compensation” that helps improve enterprise value. Indeed, in addition to “innovation compensation”, enterprises can improve their reputation by funding environmental protection projects, which, in turn, creates advantages in terms of intangible assets and differentiation (Pearson et al., 2019). Reputational capital, despite not being directly reflected in financial statements, is one of the essential factors contributing to the profitability of a firm. China has paid a hefty environmental cost amid its rapid economic growth. Problems with coal exploitation, such as the deterioration of the ecological environment, pollution and waste of water resources and air pollution, have all migrated into the social realm and must be addressed as China’s economy is shifting towards a new phase. As sustainable development increasingly becomes a reality due to public consensus, the value orientation of consumers and investors is also

H3. Implementing safe production helps LCEs improve their enterprise value. 4. Empirical research From the perspective of stakeholder, resource-based and reputation theories, the theoretical analysis presented above found that LCEs implementing CSR are in a position to obtain more benefits and thus improve their enterprise value in the new institutional context featuring supply-side reform and ecological conservation. However, empirical tests are still needed to determine whether implementing CSR could truly increase the enterprise value of LCEs in practice. 4.1. Data sources and sample selection Given that China’s supply-side reform was not implemented until late 2015, and there was a certain lag in terms of the issuance of LCEs’ CSR reports, this research obtained statistical data of China’s LCEs between 2016 and 2017. The data set encompasses 33 listed companies with coal business as their main business. Specifically, these data were obtained from the China Stock Market & Accounting Research (CSMAR) database as well as financial statements and CSR reports published by LCEs. The 9 listed enterprises with incomplete reported data were 3

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removed, and a total of 24 samples of LCEs were finally obtained.

weighted with the simple Tobin’s Q through expert consultation. The results of comparisons of classic scales of the social reputation of firms (Fombrun et al., 2000; Davies et al., 2004; Schwaiger, 2004) suggest that Schwaiger’s evaluation method better fits coal businesses. The charisma dimension in Schwaiger’s method describes the degree to which the public is emotionally attracted to a corporation; thus, charisma is suitable for use as the concrete expression of the intrinsic value of an enterprise. Charisma contains three items, namely, recognition of the company, passion for the company and regret for the company's bankruptcy. The survey data are obtained by employing a five-point Likert scale.

4.2. Variable design and model construction 4.2.1. Variable design (1) Explained variables i. The simple Tobin’s Q ratio Enterprise value is generally estimated using financial and market indicators (Wan and Liu, 2013; Tu and Zheng, 2018). The financial indicators usually include ROA or ROE; that is, the value creation is measured from a flow point of view. The market indicator is mainly denoted by Tobin’s Q, which measures an enterprise’s relative value based on its stock value. Presently, Tobin’s Q represents a mainstream approach widely utilized by scholars. The higher the Tobin’s Q value is, the greater the market value will be. The calculation is shown below:

Tobin′sQ = Marketvalueoffirm Totalassetsoffirm

(2) Explanatory variables i. Indicator of LCEs’ responsibilities in terms of supply-side reform The ultimate goal of supply-side reform is to promote the highquality development of the coal market and thus drive a growth in the profit of coal enterprises by structural adjustments to the capacity of coal production through government administrative planning (the objective set by the government is to eliminate 5 million tons of backward capacity, as well as reduce and recombine 5 million tons of capacity, within the next five years; the majority of the task must be completed within 3 years). Presently, the effectiveness of de-capacity has been mainly examined by Chinese scholars using qualitative descriptions and overall estimations, but some scholars employed quantitative indicators to analyse the topic. Considering the nature of the ownership of LCEs, this paper adopts the indicators employed by Li and Chen (2018) in their research on the de-capacity of state-owned enterprises; that is, the exit rate of capital is used as a measurement criterion and can be calculated using Eq. (2) as follows:

(1)

However, the simple Tobin’s Q ratio alone cannot reflect the comprehensive information of enterprise value because its calculation mainly relies on the market value of stocks, which are a tangible asset, without taking into account the influence of intangible assets such as the enterprise’s reputation. Further, the market value of stocks reflects only the judgement made by shareholders and market investors on the existing and future expected value of an enterprise, without expressing other stakeholders’ judgements of value. Thus, it is inadequate to measure enterprise value using the simple Tobin’s Q ratio1 . ii The adjusted value of the simple Tobin’s Q Based on the theoretical analysis above, enterprise value includes book value and intrinsic value, and intrinsic value, similar to corporate reputation, is also an important part of enterprise value. CSR activities can cause consumers and investors to increase their trust in coal enterprises and potentially increase public expectations regarding the future of enterprises. In other words, actively implementing CSR increases social recognition and thus adds to the reputational capital of coal enterprises, thereby bringing non-monetary benefits. In particular, today’s increasingly tightened environmental regulations have prompted indirect stakeholders such as the government and social masses to give more attention to the social value created by enterprises in terms of their focus on the sustainability of the ecological environment amid their growth. Therefore, drawing on existing studies (Fombrun, 1994; Zhou et al., 2016), this paper incorporates the “influential value of social reputation of firm” to adjust the simple Tobin’s Q. In addition, such a treatment is not only more suitable for Chinese firms in a new stage but also mitigates data limitations resulting from the inadequate reflection of the current impact of each enterprise’s CSR on enterprise value because China’s supply-side reform has been implemented for a short period of time. The influential value of CSR in this research is determined using the expert strategy. Experts on the coal industry were invited to evaluate the increase in the value in the current period that was attributable to the corporation’s reputation. All evaluators were on the Committee of Economic Management Experts of the China National Coal Association, and a survey was conducted during the 2018 annual meeting of the committee. Using excerpts of financial statements and CSR reports of 24 LCEs between 2016 and 2017 provided by the researcher, 7 experts from the coal industry evaluated the social reputation level of the sampled enterprises. Finally, according to the definitions of two types of enterprise value, the derived influential value of social reputation was

Exitrateofcoalcapital= capitalexitedoftheyear totalcapitalbytheendoflastyear

(2)

ii Indicator of LCEs’ environmental responsibility Different industries may have mixed opinions on their responsibility regarding environmental protection, and thus in this study, the environmental responsibility indicator has been designed differently. For example, the forestation and wood industry utilizes indicators like expenditures for planting, seedlings, and sustainable development, while heavily polluting industries employ pollution discharge fees and an environmental protection tax as their indicators. Although the coal industry falls into the heavily polluting category, one of the major goals of this research is to explore the impact of the implementation of environmental protection on enterprise value; thus, these indicators fail to adequately reflect how enterprises voluntarily take on that responsibility. Thus, drawing on existing studies (Tang and Yang, 2018; Sun, 2017), this paper adopts the ratio of the inputs into environmental protection made by LCEs as the measurement indicator of their implementation of environmental protection. The calculation is shown as follows:

Ratioofenvironmentalprotectionexpenditure= inputoffundinenvironmentalprotection mainbusinessrevenue

(3)

iii Indicator of LCEs’ responsibility regarding safety There are no separate compulsory regulations concerning personnel safety in Chinese specifications of the coal industry, but the death rate per million tons of coal represents a widely accepted standard within the industry. Due to the small differences in the value of this indicator among LCEs and the contingent nature of safety accidents, this paper does not use this indicator. According to Interpretation No. 3 to the Accounting Standards for Business Enterprises, the expenses of high-risk

1 The original data for the simple Tobin’s Q ratio were obtained from the China Stock Market & Accounting Research (CSMAR) database.

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Table 1 Descriptive statistics for 2016. Name of variable

Code of variable

N

Minimum value

Maximum value

Mean value

Standard deviation

Simple Tobin’s Q Influential value of social reputation Exit rate of coal capital Expenditure rate in environmental protection Utilization rate of special reserve Log of total assets Asset-liability ratio Valid N (listwise)

STQ ISR EC EE UR TS AL

24 24 24 24 24 24 24 24

0.856 2.200 0.000 0.000 −1.010 22.393 0.231

1.599 5.000 0.329 0.142 1.230 29.374 0.844

1.155 3.574 0.071 0.008 0.804 24.245 0.562

0.218 0.834 0.089 0.029 0.466 1.463 0.163

selected and designed variables mentioned above, the exit rate of coal capital, the ratio of environmental protection expenditures and the utilization rate of special reserves were used as the explanatory variables to denote how enterprises implement their CSR. The adjusted value of the simple Tobin’s Q was used as the explained variable to denote enterprise value. The log of total assets and the asset-liability ratio were used as control variables. The model constructed in this research is shown in Eq. (5):

enterprises related to safe production are included in the accounting item “special reserves”, which should be recognized in the owner’s equity statement and presented separately. Therefore, this paper adopts the utilization rate of special reserves as the indicator measuring LCEs’ voluntary implementation of safe production. This indicator can be calculated using Eq. (4) as follows:

Utilizationrateofspecialreserve= usedspecialreserve (expenses ) appropriatedspecialreserve (expenses )

(4)

AdjustedTobin′s = αi + β1EC + β 2EE + β3UR + β 4TS + β5AL + εi (5)

(3) Control variables

where αi denotes the unobservable factor of the adjusted value of the simple Tobin’s Q; βi is the regression coefficient, that is, the marginal utility of the influencing factor; and εi is the random error, where i = 1, 2, 3. Given that expenditures for environmental protection and safety are operating expenses and that the exit of coal capital reduces inputs, the implementation of CSR may undermine corporate benefits in the short term. Previous studies (Tu and Zheng, 2018) indicate that the implementation of CSR is more likely to have long-term impacts and tends to influence the future profits of a firm through an improvement in the firm’s reputation and the acquisition of intangible assets. However, the current simple Tobin’s Q ratio alone cannot adequately express the improvement in a firm’s reputation and social recognition arising from enterprises’ compliance with state policies and implementation of social responsibility. Therefore, this paper incorporated the “influential value of social reputation of firm” to form the final adjusted value of Tobin’s Q to sufficiently reflect enterprise value.

Control variables are factors influencing the dependent variables rather than the independent variables. The role of a control variable is to control for other influencing factors to ensure that the empirical results are more authentic and the conclusions are more reliable. A large body of existing research (Cui, 2014; Wan and Liu, 2013; Margolis, 2009; McWilliams and Siegel, 2000) was referenced when selecting the control variables for this paper. After eliminating influencing factors with excessive correlations, the following factors were considered: (i) Corporate size. In economics, it is commonly known that the larger an enterprise is, the more value it tends to create. Therefore, corporate size is an important variable that influences enterprise value. This paper adopts the log of total assets of a firm to measure the size of an enterprise. (ii) Asset-liability ratio. The asset-liability ratio is usually used to reflect an enterprise’s ability to utilize creditors’ funds in its operational activities. Within a tolerable range, operations funded by debt generally means that more resources are being used by an enterprise, allowing it to engage in new investments or improve existing production equipment, thus increasing enterprise value.

4.3. Analysis of statistical results 4.3.1. Descriptive analysis This paper used SPSS 21.0 software to conduct a descriptive statistical analysis on Tobin’s Q values and other CSR values of 24 LCEs; the study period was between 2016 and 2017. The results are shown in Tables 1 and 2. As seen from the table, the changes in the mean value of the yearly simple Tobin’s Q of the LCEs during the study period from 2016 to 2017 are quite steady (1.155-1.134). Based on the definition of Tobin’s Q, higher values of the term mean higher market value and thus more attention from investors. The simple Tobin’s Q values of LCEs were

4.2.2. Model construction Based on the discussion of the influence of CSR on enterprise value in the research hypothesis and the research conclusion of the directional relationship between the two based on the existing meta-analysis of the literature (Margolis et al., 2009; Wang, 2014), this paper holds that there is a one-way causal relationship between the new social responsibility and enterprise value of coal enterprises. Based on the Table 2 Descriptive statistics for 2017. Name of variable

Code of variable

N

Minimum value

Maximum value

Mean value

Standard deviation

Simple Tobin’s Q Influential value of social reputation Exit rate of coal capital Expenditure rate in environmental protection Utilization rate of special reserve Log of total assets Asset-liability ratio Valid N (listwise)

STQ ISR EC EE UR TS AL

24 24 24 24 24 24 24 24

0.878 1.875 0.000 0.000 −0.990 22.498 0.219

1.493 5.000 0.181 0.070 1.510 29.366 0.902

1.134 3.469 0.043 0.006 0.765 24.298 0.546

0.162 0.910 0.046 0.014 0.480 1.470 0.172

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5. Discussion

generally lower than those of other energy industries (the mean values of the oil and nonferrous metal industries are 1.397 and 3.240, respectively) and have dropped significantly compared with their levels before 2012 (the mean values of Tobin’s Q were invariably higher than 2 during the “golden decade” of the coal industry), indicating a relatively pessimistic attitude of investors towards the current conditions of the coal industry. Except for the capital exit rate, the explanatory and control variables changed little during the 2 years. The maximum and minimum values of the capital exit rate during the study period were 0.329 and 0.000, respectively, with the standard deviation being 0.071, indicating a very large gap among LCEs in terms of de-capacity. This may be caused by certain issues: LCEs may be subject to different conditions of quality in terms of capacity stock owing to the influences of their previous natural resource endowment. LCEs may also act differently when implementing their de-capacity responsibilities. The mean value of the capital exit rate during the two years exhibited significant variations because the degree to which the policy was implemented was relatively high during the initial stage.

The overall results of the regression indicate that the long-term impact of CSR in the new institutional environment has not yet been observed due to the constraints of the span of data despite the fact that it has been 3 years since supply-side reform was implemented. However, LCEs’ implementation of CSR pertaining to de-capacity policy in supply-side reform and environmental protection did improve enterprise value during the last two years. The coefficient values also indicate that the effect of implementing environmental protection is stronger than that of reducing capacity. In existing research, most scholars focused on the coal industry in the context of supply-side structural reform and analysed de-capacity policies and difficulties encountered amid de-capacity (Zhou and Wang, 2017; Zhang, 2018; Feng, 2019). Few studies have considered the relationship between de-capacity and the enterprise value of coal enterprises. Through empirical research, this paper finds that coal enterprises' fulfilment of supply-side reform responsibility can promote the improvement of enterprise value to some extent, and the fulfilment of environmental protection responsibility plays a more important role in the improvement of enterprise value. This research conclusion can encourage coal enterprises to fulfil their social responsibilities and reduce their negative resistance and path dependence. The non-mandatory nature of CSR disclosure in Chinese enterprises has led to incomplete content and inconsistent CSR reporting, in terms of statistics, by coal enterprises, making it quite difficult to collect data on CSR expenditures. For instance, 9 Chinese LCEs were found to have missing data in their CSR reports. In addition, when the survey used in this research was conducted, it was found that some firms adopted inconsistent estimation standards compared to other enterprises. Therefore, most scholars have avoided CSR measurements in their research. Unlike previous studies, this paper asserts that enterprise value is not only derived from financial estimation, but more importantly, it is the aggregate of the tangible and intangible assets of an enterprise. In terms of measurement methods, the estimated values of improved corporate image and reputation, as well as other benefits obtained from intangible assets, were used to compensate for the inadequacy of previous studies, where the simple Tobin’s Q was used to reflect only the market capitalization of stocks. However, due to the limited study period and insufficient information disclosure, this paper was not able to fully realize its potential achievements. It can be expected that with deepened implementation of supply-side reform policies and sophisticated laws and regulations on CSR disclosure, more comprehensive and accurate data will be obtained for medium- to long-term data tracking in the future, thereby improving the robustness and reliability of this research.

4.3.2. Analysis of regression results Given that it has been a short period of time since the supply-side reform policies were implemented, and this research used statistical data on LCEs spanning from 2016 to 2017, the mixed regression approach was directly adopted in this research. The regression results are shown in Tables 3 and 4. As seen from the regression results, the adjusted R-squared value is 0.657, indicating a good fit of the model in the mixed regression. The F and P values in the variance analysis table were 19.005 and 0.000, respectively, indicating a significant overall regression of the model, and the regression equation was statistically significant. In terms of the significance of influencing factors: (i) The capital exit rate indicator passed the statistical test, indicating that implementing supply-side policy responsibility has a significant effect on LCEs’ enterprise value. The fact that the regression value was positive shows that a significantly positive effect was generated for enterprise value when LCEs implemented this policy. Therefore, H1 was verified. (ii) The same results were also obtained for H2. It is noteworthy that in contrast to the prediction in previous studies of a certain latency between the implementation of environmental protection and an increase in enterprise value (Hart and Ahuja, 1996), coal enterprises stand to gain immediate positive effects upon implementing environmental protection given the increasing need for environmental protection in today’s society. (iii) The relationship between the utilization rate of special reserve and enterprise value was not significant, indicating that the effect of implementing safety responsibility by LCEs on enterprise value had not yet materialized during the research period. This may be because the effect of safety inputs is less significant in the short term. In the meantime, the occurrence of safety accidents is contingent upon many factors. Establishing an effective cycle for safety inputs is a long, continuous process; therefore its immediate effect on enterprise value is nonsignificant.

6. Policy implications The focus of China’s economic development has shifted from high speed to high quality. High quality is a requirement applied to demand, but more importantly, it also applies to supply. Supply-side reform represents an important initiative designed to promote high-quality economic development. During the study period, CSR includes much more than the traditional category of social responsibility, and supply-side structural reform has imposed new social responsibilities on coal enterprises. The major social responsibilities that must be exercised by these enterprises under the new institutional environment include reducing excess capacity, eliminating backward capacity, and exercising social responsibility associated with environmental protection and safe production. The next few decades will not see a change in the dominant role of coal as China’s primary energy source, due to China’s resource endowment and the national energy strategy. However, given the momentum of the previously loose governmental regulations and the

Table 3 Mixed regression variance. Model 1

Regression Residual Total

Sum of Squares

df

Mean Square

F

Sig.

6.513 2.879 9.391

5 42 47

1.303 0.069

19.005

0.000b

a. Predictors: (constant), EC, EE, UR, TS, AL. b. Dependent Variable: Adjusted Tobin’s Q. 6

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Table 4 Results of mixed regression. Model

1

(constant) EC EE UR TS AL

Unstandardized Coefficients

Standardized Coefficients

B

Std. Error

Beta

3.553 4.804 7.356 0.049 −0.061 −0.171

0.788 0.562 1.945 0.108 0.032 0.248

0.765 0.370 0.042 −0.200 −0.063

F

4.509 8.550 3.781 0.450 −1.931 −0.690

Sig.

0.000 0.000 0.000 0.655 0.060 0.494

Collinearity Statistics Tolerance

VIF

0.912 0.764 0.831 0.683 0.864

1.097 1.310 1.203 1.464 1.158

a. Dependent Variable: Adjusted Tobin’s Q.

“extensive” mode of production, the coal industry will be one of the most difficult areas in terms of implementing CSR. Through theoretical analysis and empirical testing, this research shows that LCEs’ implementation of CSR improves their enterprise value, and such a positive effect will directly drive Chinese coal enterprises to voluntarily take on their social responsibility and actively respond to government policies. The theoretical analysis in this paper also suggests that supplyside reform, including eliminating inferior coal production capacities and accomplishing coal market clearance, will productively relieve the imbalance between supply and demand in China’s coal market. The rebound in coal prices helps boost coal businesses and improve the conditions of long-term losses. The supply-side reform makes up for the deficiency of market regulation to some extent. The following policy implications can be drawn from this research: (i) For LCEs, behaviour like actively shutting down low-quality, lowcapacity and noncompliant coal mines, exploiting coal mines in an orderly fashion, reducing environmental pollution and improving safety levels through technological and product upgrading in accordance with policy requirements are all helpful for improving the economic and social value of enterprises. Indeed, the particularity of China’s institutions should also be taken into account, and listed enterprises should wisely handle issues associated with employee dismissal and the disposal of state-owned assets and liabilities in the de-capacity process. (ii) The government should put more effort into legislating and improving laws and regulations concerning CSR disclosure. Due to the absence of these laws and regulations, some enterprises have acted inadequately in terms of implementing CSR pertaining to environmental protection and safe production. In addition, supervision of CSR has been lacking. Mandatory regulations can improve the effectiveness of enterprises’ implementation of CSR in terms of legal completeness. In the meantime, the incentive and restraint mechanisms show that restraints alone cannot improve enterprises’ motivation to implement CSR. Only by combining penalties with rewards can the maximum utility be realized. Thus, in addition to formulating new supervisory and administrative regulations of CSR, incentive measures are also needed so that the government can provide policy support and rewards to maximize the motivation of enterprises who are actively engaged in reducing capacity and perform well in implementing CSR. (iii) The social masses should strengthen their supervisory efforts. In particular, environmental protection organizations and other organizations highly connected to social responsibility should leverage their roles in supervision (Fordham et al., 2018). With the emergence of self-media and other forms of promotion, mass media can enhance real-time, cross-geographical promotion in terms of the speed and coverage of information. Therefore, mass media should further leverage the supervisory strength of media to bring coal enterprises under constant and transparent supervision as they implement CSR.

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Wang, N., 2017. Corporate Governance, Corporate Social Responsibility Implementations and Corporate Performance. Doctoral dissertation. Shihezi University, Xinjiang. Wang, Q., 2014. The Relationship Between Corporate Social Responsibility and Corporate Financial Performance. Doctoral dissertation. Zhejiang University, Hangzhou. Yang, X.Y., Peter, H., 2019. Is mining harmful or beneficial? A survey of local community perspectives in China. Extr. Ind. Soc. 6 (2), 584–592. Yang, Z., 2018. Environmental protection investment, technological innovation and enterprise market value. Commun. Finance Account. 6, 37–41. Zeng, M., Zhan, J.V., 2015. Sharing resource wealth for peace: a Chinese strategy to cope with the resource curse. Extr. Ind. Soc. 2 (2), 302–309. Zhang, P., 2018. Research on the transformation and development of coal enterprises’ decapacity from the perspective of economic cycle. Coal Econ. Res. 38 (12), 44–48. Zhou, F.Q., Wang, J., 2017. Thoughts and suggestions on further capacity reduction in coal industry. Macroecon. Manage. (11), 12–16. Zhou, L.P., Chen, Y., Jin, Y.J., 2016. Empirical research on the relationship between corporate social responsibility and financial performance―an analysis and interpretation based on the perspective of corporate reputation. Jiangsu Social Sci. 3, 95–102. Dr. Yixin Zhang, Professor, Master tutor, mainly engaged in the research of innovationdriven resource-based city development. Project appraisal expert of Harbin science and technology bureau, successively served as director of Heilongjiang management society, Heilongjiang management science and engineering society and Heilongjiang technical and economic society. Dr. Maozhong Cui, Associate professor, Master tutor, mainly engaged in the research of technological innovation. Key members of the key research base of humanities and social sciences in colleges and universities in Shanghai city.

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