Keju And Corporate Behaviors

In the report of the 19th CPC National Congress,President Xi Jingping points out that"cultural confidence represents a fundamental and profound force that sustains the development of a country and a nation".Keju(i.e.,the imperial examination system)is one of the important components of Chinese culture and has exerted a continuous influence on the values of Chinese people during its existence.Western countries even call Keju the fifth great invention of China.Unfortunately,Chinese people usually only pay attention to the negative side of Keju,but ignore its positive side.Using the variation in the number of Jinshi cross prefecture cities to proxy for Keju effect,this paper investigates the micro-level economic consequence of Keju.This paper manually collected the data on the hometown of more than 50 thousand Jinshi(i.e.,the highest attainable qualification under China's imperial exam)during the Ming and Qing dynasties.Then,based on the Chinese Historical Geographic Information System(CHGIS)developed by Harvard University and Baidu Map,this paper successfully mapped each ancient county one by one to current prefecture-level cities.According to the statistics in this paper,the distribution of Jinshi at the prefecture city level exhibits the two following characteristics:(1)the number of Jinshi during the Ming dynasty and the number of Jinshi during the Qing dynasty are roughly equal,revealing the stability of Keju influence.(2)there exists a huge imbalance in the distribution of Jinshi at the prefecture city level.Some prefecture cities(e.g.,Hangzhou,Zhejiang)have generated more than a thousand Jinshi,while in some prefecture cities(e.g.,Zhoushan,Zhejiang),only a few people have earned the Jinshi qualification during the Ming and Qing dynasties.Although Keju is a national system,its influence still inevitably varies cross different regions.This paper focuses on the impact of Keju on corporate behaviors in the following three aspects:(1)This paper examines the impact of Keju on corporate innovation.The findings show that Keju contributes to corporate innovation to a certain extent.However,when Keju effect exceeds the threshold,Keju becomes detrimental to corporate innovation.There is a non-linear inverted U-shaped relationship between Keju and corporate innovation.(2)This paper examines the impact of Keju on corporate philanthropy.The findings show that the level of corporate philanthropy is significantly higher in areas where Keju effect is greater,revealing the positive impact of Keju on corporate philanthropy.(3)This paper examines the impact of Keju on earnings management.The findings show that the amount of discretionary accrual is significantly lower in areas where Keju effect is greater,revealing the negative impact of Keju on earnings management.Furthermore,above findings are robust to a variety of sensitivity tests and are still valid after controlling for the endogeneity issue.In a nutshell,regarding to the impact ofKeju on corporate behaviors,Keju not only has a dark side,but also has a bright side.This paper makes several theoretical contributions as below:(1)Keju cannot be judged arbitrarily.This research on the economic consequence of Keju may help people to take a proper view of Keju,and thus build cultural confidence on it(2)This paper validates the impact of Keju as a historical institution on corporate behaviors,which may help people to understand the continuous influence of history on current economic outcomes.(3)This paper contributes to three branches of literature on the determinants of corporate innovation,corporate philanthropy,and earnings management,respectively.