Party leadership, corporate governance and stock price crash risk: Evidence from China

Abstract

In this paper, we provide evidence supporting the negative effect of corporate party organizations on Chinese state-owned enterprises' stock price crash risk. To illustrate the underlying mechanisms, we verify the impact of corporate party organizations on chairmen of different ages and positions and find that the restraining effect only exists in companies with strong promotion incentives for senior executives, supporting the governance role of the corporate party committee. Further, the impact of corporate party organization is weakened when the chairman is more powerful and alternative governance mechanisms work. In contrast, the governance effect is more pronounced in the companies controlled by local governments and after the new anti-corruption policy. We adopt several methods to address endogeneity concerns and find our results robust. Overall, this paper contributes to the mixed evidence on governance and stock price crash risk from the perspective of a unique arrangement, corporate party organizations.