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Party Building or Noisy Signaling? The Contours of Political Conformity in Chinese Corporate Governance

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  • Lauren Yu-Hsin Lin
  • Curtis J. Milhaupt

Abstract

We examine responses by Chinese firms to a party-building policy launched by the Chinese Communist Party (CCP) in 2015 to reform China’s state-owned enterprises (SOEs). The policy requires SOEs to follow a model template of charter amendments to formalize and elevate the role of the CCP in their corporate governance. During the period 2015–18, about 10 percent of publicly traded SOEs failed to follow the mandatory policy, while nearly 6 percent of privately owned enterprises (POEs) complied even though they were not subject to the policy. We find wide variation in the provisions adopted within and across ownership types, with SOE adoptions apparently affected by their ownership structures and exposure to capital market forces and POE adoptions associated with political connections. Our findings highlight the complex contours of political conformity in Chinese firms and raise questions about the trajectory of Chinese corporate governance reform and foreign investment activity.

Suggested Citation

  • Lauren Yu-Hsin Lin & Curtis J. Milhaupt, 2021. "Party Building or Noisy Signaling? The Contours of Political Conformity in Chinese Corporate Governance," The Journal of Legal Studies, University of Chicago Press, vol. 50(1), pages 187-217.
    • Handle: RePEc:ucp:jlstud:doi:10.1086/713189
    DOI: 10.1086/713189
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    Cited by:

    1. Chen, Christopher Chao-hung & Guo, Re-Jin & Lin, Lauren Yu-Hsin, 2023. "The effect of political influence on corporate valuation: Evidence from party-building reform in China," International Review of Law and Economics, Elsevier, vol. 73(C).
    2. Xie, Sujuan & Lin, Bingxuan & Li, Jingjing, 2022. "Political Control, Corporate Governance and Firm Value: The Case of China," Journal of Corporate Finance, Elsevier, vol. 72(C).
    3. François Chimits, 2023. "What Do We Know About Chinese Industrial Subsidies?," CEPII Policy Brief 2023-42, CEPII research center.
    4. Ming Chen & Jiao Wu, 2023. "State ownership may not be bad: Based on bibliometric research (2002–2021)," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1285-1304, March.

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