ABSTRACT
The unique political system in shaping socio-economic policies in China calls for a detailed exploration of its precise effect on corporate governance. Using the mandatory establishment of a Chinese Communist Party (CCP) branch after 2018 as an exogenous shock, we find that the establishment of a CCP organization reduces opportunistic insider sales. Our paper contributes to the emerging literature on the role government plays in the business environment.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 Also see examples of waves of opportunistic sales in China: https://bnn.network/breaking-news/china-launches-investigation-into-shareholder-transaction-rattling-obscure-furniture-maker/ and China’s regulator gets tough on insider trading as it metes out record penalty on wrongdoers in the financial markets (yahoo.com).
2 It is worth noting that ‘restore discipline’ means measures taken by the CCP to address perceived lapses in obedience to party policies, regulations, or ideological guidelines.
3 These industries typically exhibit high levels of leverage and are subject to significant regulation.
4 The special treatment (ST) Shares represent companies with abnormal financial conditions (details see Bank of China (Hong Kong) Limited (etnet.com.hk) and Shanghai Stock Exchange brings in new delisting rules |Economy |chinadaily.com.cn).
5 This is calculated as 3.78%/0.2228(mean of Indicator for opportunistic sale in ) = 17%
6 Details please find Article 5 in the Code of Corporate Governance for Listed Companies (http://www.csrc.gov.cn/csrc_en/c102034/c1372459/1372459/files/P020190415336431477120.pdf)
7 Beck, K.I., Brødsgaard, K.E., Citation2022. Corporate governance with Chinese characteristics: Party organization in state-owned enterprises. The China Quarterly 250, 486–508.
8 We utilize 2017 as our placebo year, operating under the assumption that the policy was implemented in 2017 instead of 2018. If this hypothetical date were accurate, we would expect to observe statistically significant results.