Channeling and Shielding: The Janus Face of Political Ties in Information Disclosure

We examine how political ties influence information disclosure in charitable organizations in an emerging market. We argue that the effect of charities’ political ties on their information disclosure depends on whether the disclosure practices are state-mandated or voluntary. For mandatory disclosure practices, where state pressure is strong, resource dependence created by political ties channels compliance to state mandate. In contrast, for voluntary disclosure practices, where the state pressure is weak, political ties are used by connected insiders to shield their organizations from disclosure. Further, we investigate how charities’ financial dependence on the state and on the donations market (both domestic and foreign) moderates the effects of political ties on disclosure. Our investigation of Chinese charitable organizations from 2010 to 2014 provides strong support for our predictions. This study enhances our understanding for political ties and information disclosure by articulating two mechanisms–channeling and shielding–that explain the influence of political ties on disclosure and by highlighting how this influence varies according to organizations’ financial dependence.