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We study how societal culture shapes business activities and corporate behavior by leveraging data on the locations of Confucian schools in Ancient China. The number of historic Confucian schools surrounding a current firm’s location proxies for the firm’s exposure to Confucianism, the dominant culture in China over the last two thou- sand years, and is immune to the subjectivity and selection problems of most culture measures. We find systematic differences in corporate behavior across regions based on their varying exposure to Confucianism. Listed companies more exposed Confucianism make greater social contributions, provide greater employee protection, and have higher entertainment expenses, more patents, and more trade credits. We argue that these corporate attributes match the five basic virtues of Confucianism: benevolence (Ren), righteousness (Yi ), courteousness (Li ), wisdom (Zhi ), and trustworthiness (Xin). Our results cannot be explained by other cultural traits and are robust to various checks, including using the number of renowned Confucian scholars in the Ming Dynasty and the regional death rate in the Taiping Rebellion as instrumental variables. The effects are weaker in cities with Mao-indoctrinated leaders (whose ideology suppresses Confucianism) and high levels of market-orientation and in firms with non-Chinese directors on board. Stronger Confucianism is associated with greater profitability and growth.

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