What explains Chinese private entrepreneurs' charitable behaviors?-A story of dynamic reciprocal relationship between firms and the government

•We study the dynamic reciprocal relationship between private firms and local governments in China.•Private entrepreneurs with initial loans are more likely to participate in donation.•The reciprocal relationship is a personal relationship rather than an institutional relationship.•This study highlights the importance of firm-government relationships in developing and transition economies.

This paper studies Chinese private entrepreneurs' charitable behaviors by exploring the dynamic reciprocal relationship between private firms and local governments. By using three waves of a nationwide survey of private firms in 2002, 2004 and 2006 from China, we provide robust evidence that Chinese private entrepreneurs with access to preferential loans from state-owned banks when their businesses first started are more likely to participate in donation and anti-poverty programs organized by the government, and the effects of such loans are more pronounced for small firms and firms in regulated industries. Furthermore, we find that this reciprocal relationship between local governments and private entrepreneurs is a personal relationship rather than an institutional relationship, which declines in importance in areas with better legal institutions and in regions with change of local leadership. Finally, there is evidence that Chinese private entrepreneurs' charitable behaviors are also motivated by political returns and other individual characteristics.