Party Organizations in Chinese Privately Owned Firms and Corporate Donations
ZHENG Dengjin, XIE Deren
School of Accountancy / China's Management Accounting Research & Development Center, Central University of Finance and Economics; School of Economics and Management, Tsinghua University
Summary:
Most previous studies approach the relationship between enterprises and government from the perspective of macro government intervention or the government backgrounds of managers or shareholders. This, however, ignores the distinction between the government and political parties and the influence of party organizations in enterprises. Given that the role of the party directly depends on party organizations, we must explore the influence of such organizations on firms' behavior. During the 18th and 19th National Congresses of the Communist Party of China(NCCPC), Xi Jinping repeatedly stressed the importance of party organizations in corporate governance. At the National Conference on Party Construction in Non-public Enterprises, Xi emphasized that the key to building a corporate governance mechanism with Chinese characteristics lies in embedding party organizations into the corporate governance structure. Unfortunately, there is little empirical research on the economic consequences of such embedding in privately owned firms. Consequently, we focus on the influence of party organizations in privately owned firms in the corporate donations setting. As mentioned, we take the social donation behavior of privately owned firms as the research setting. We choose the social donation setting (an important aspect of corporate social responsibility) to study the role of party organizations in privately owned firms for two reasons. First, corporate social donation behavior is consistent with the Party's beliefs and mission. Second, with the development of privately owned firms in China, charitable donations from privately owned firms have gradually become an important part of China's social public welfare. Since 2007, the donation rate of privately owned firms has been more than 50%. Therefore, the social donation of privately owned firms offers an ideal setting in which to test the economic consequences of the influence of party organizations in such firms. The effect of party organizations on privately owned firms is largely ignored by the literature. We manually collect data on party organizations in privately owned listed companies for the period 2004-2015 to examine the real effect of party organizations on the donations of these firms. We find that donations are significantly positively related to party organizations in these firms, and the positive effect is still significant after donation data are adjusted to the industry or province level. The positive effect is more pronounced in privately owned firms that have more solid party organizations or managers that pay more attention to them, and during (NCCPC) periods. In addition, the results are robust after controlling for potential endogeneity. Finally, we find that province-level donations are significantly higher in provinces where the impact of party organizations is stronger. The main contributions of this paper are as follows. First, we provide new perspectives and evidence for research on political parties and political party organizations. Previous studies mainly explore how party organizations in state-owned enterprises affect corporate governance and corporate performance. Due to the difficulty of data collection and other reasons, few empirical studies address the economic consequences of party organizations in privately owned firms. Second, we expand the cross-disciplinary study of government-enterprise relationships and corporate behavior. We study the relationship between government and enterprises from the perspective of party organization embeddedness; this topic spans the fields of sociology, politics, management, and economics and thus extends the literature on the relationship between government and enterprises. Finally, this paper has strong immediate significance. The results show that party organizations embedded in privately owned firms help them fulfill their social responsibilities. This is consistent with the mission of the Central Committee of the Communist Party of China to strengthen party organizations in privately owned firms. The findings also offer useful insights on the experience of party organizations' construction in privately owned firms, which can serve as a reference for the reforms, such as strengthening the construction of grass-roots organizations.
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