Buffering or Binding? Political Connections and Firms’ Sustainability Disclosure Strategies in China

How do politically connected firms comply with regulatory mandates on sustainability practices? Current debate centers on whether politically connected firms are “buffered” from regulations that could hinder their business or become “bound” to them because their position in the state-business network makes noncompliance more problematic. Using an original dataset on the political connections of Shanghai and Shenzhen-listed firms in China from 2011 to 2021, combined with Bloomberg’s environmental disclosure scores, we find that the compliance of politically connected firms with sustainability is strategically conditioned to regulatory pressure. Normally, firms that are politically more connected tend to adopt weaker environmental disclosure practices than firms that are less connected. However, the former become more transparent than the latter when regulatory scrutiny intensifies. This shift is particularly pronounced for firms with ties to central institutions. The dual effects of political connections on firms’ compliance with sustainability practices carry important implications for steering organizational behavior toward climate change mitigation.