Does Discipline Commission Participation Improve the Governance Efficiency of the Supervisory Board in SOEs? Analysis from the Perspective of Agency Cost

Abstract

A major feature of Chinese SOEs’ corporate governance is party organization participation. SOEs’ party organization mainly includes two parts, one is the party commission and the other is the discipline commission. More studies have focused on the active role of party commission in SOEs’ corporate governance （Cheng, et al., 2017; Huang, et al., 2017; Ma, et al., 2012）, while less literature has noticed how the discipline commission performs supervisory functions in corporate governance. Many documents and regulations clearly stipulate the supervision responsibilities that the discipline commission should perform. In fact, these regulations have a certain fusion with the provisions of the Company Law on the supervisory board’s duties. Under the realistic situation that the Chinese supervisory board cannot exercise its supervisory responsibilities effectively （Wang and Zhao, 2016）, this fusion of functions is expected to improve the efficiency of the supervisory board if the discipline commission participates in the governance of the supervisory board. This paper chooses the state-owned listed companies in China’s capital market from 2011 to 2016 as samples to inspect the above problems from the perspective of agency cost. The results show that: （1） Discipline commission participation in the governance of the supervisory board can significantly restrain agency cost; （2） Under the condition that companies are in a poor environment, the restraining effect of discipline commission participation on agency cost is significantly enhanced; （3） The above inhibition works much more obviously in local SOEs than in central SOEs. The possible contributions of this paper are as follows: （1） Compared with that of existing literature （Chen, et al., 2014）, the definition organized on discipline commission participation variables is more in line with the realistic context in this paper. （2） This paper enriches the research on the supervisory board and provides a new reference for the supervisory board’s reform of SOEs. （3） This paper empirically examines the effect of discipline commission participation in the supervisory board’s governance through large sample data, enriching the empirical literature of discipline commission participation in corporate governance. （4） This paper refines the party organization structure, which is helpful to understand the positive role of party organization participation, especially discipline commission participation in corporate governance. Based on the positive effect on governance efficiency, relevant departments should pay attention to the active role of discipline commission participation in corporate governance. In the future, the discipline commission may be required to participate in the supervisory board’s governance in the form of legal provisions or regulatory documents. To achieve the basic goals of improving corporate governance and protecting the interests of investors, local SOEs and enterprises with a poor legal environment should encourage the discipline commission to participate in the governance of the supervisory board.