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

48 Pages Posted: 27 Jan 2020 Last revised: 24 Jul 2020

See all articles by Lauren Yu-Hsin Lin

Lauren Yu-Hsin Lin

City University of Hong Kong (CityUHK) - School of Law; City University of Hong Kong (CityUHK) - Centre for Chinese & Comparative Law

Curtis J. Milhaupt

Stanford Law School; European Corporate Governance Institute

Date Written: July 14, 2020

Abstract

We examine responses by Chinese firms to a “party-building” policy launched by the Chinese Communist Party (CCP) in 2015, part of program 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. In the period 2015-18, about ten percent of the SOEs failed to follow the mandatory policy, while nearly six 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 firm 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.

Keywords: Corporate Governance, State Capitalism, State-owned Enterprises

JEL Classification: G3, P1

Suggested Citation

Lin, Lauren Yu-Hsin and Milhaupt, Curtis J., Party Building or Noisy Signaling? The Contours of Political Conformity in Chinese Corporate Governance (July 14, 2020). European Corporate Governance Institute - Law Working Paper No. 493/2020, Stanford Law and Economics Olin Working Paper No. 545, City University of Hong Kong Centre for Chinese and Comparative Law Research Paper Series Paper No. 2020/005, Available at SSRN: https://ssrn.com/abstract=3510342 or http://dx.doi.org/10.2139/ssrn.3510342

Lauren Yu-Hsin Lin (Contact Author)

City University of Hong Kong (CityUHK) - School of Law ( email )

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City University of Hong Kong (CityUHK) - Centre for Chinese & Comparative Law

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Curtis J. Milhaupt

Stanford Law School ( email )

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European Corporate Governance Institute ( email )

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