Abstract
The performance implications of the involvement of grassroots local party committees of the Chinese Communist Party (CCP) in the decision making of China's listed firms are investigated. First, we show that the decision-making power of local party committees relative to the power of the largest shareholders is associated positively with firm performance. This result suggests that party control restrains the largest shareholders from expropriation but that the existing level of party control is insufficient to control the largest shareholders. Second, we show that the decision-making power of local party committees relative to managers is associated negatively with firm performance. This result suggests that the political costs associated with party control over managers are more detrimental to firm performance than are agency problems and that the existing level of party control over managers is excessive. On balance, our results indicate that the existing level of party control is excessive and that reducing the decision-making power of local party committees would improve the performance of China's listed firms.
Original language | English |
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Pages (from-to) | 617-636 |
Number of pages | 20 |
Journal | Journal of Comparative Economics |
Volume | 32 |
Issue number | 4 |
DOIs | |
Publication status | Published - 2004 |
Externally published | Yes |
Bibliographical note
We thank three anonymous referees and Barick Chung for their valuable suggestions. This paper benefited immensely from insightful comments from our editor, John P. Bonin. Kalok Yuen provided excellent research assistance.Funding
This research is supported by the Hong Kong Research Grants Council (RGC) Competitive Earmarked Research Grant Awards 2002–2003 (HKU7173/02H). It is also partially supported by the Area of Excellence Scheme funded by RGC (AoE/H-05/99).