Political Party System and Enterprise Innovation: Is China Different?

ABSTRACT

A significant feature of corporate governance in China is the participation of party organizations, reflecting the involvement of the Chinese political party system in enterprises. Using a sample of A-share market listed central state government owned enterprises (hereinafter referred to as “CSOEs”) from 2003 to 2020, this study examines the influence of China’s political party system and state-owned assets supervision system on enterprise innovation. The empirical results show that the participation of party organizations in corporate governance can significantly promote CSOEs’ innovation, especially in the case of CSOEs with weak state-owned assets supervision. The party organization’s role in promoting innovation is mainly achieved through the board of directors and senior management, rather than through the cooperation of the board of supervisors. We also find that this role exists in both substantive and strategic innovations, but mainly exists in areas with weak market allocation resources. Our findings contribute to the literature examining the determinants of firm innovation, and have practical implications for corporate governance in developing countries.

KEYWORDS:

• Political party system
• corporate governance
• state-owned assets supervision
• enterprise innovation

JEL:

• G34
• O31
• G38

Supplementary Material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/1540496X.2022.2103401

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71602126, 71672151], and the Key Project of Social Science Research of Beijing Municipal Education Commission [SZ202210038021].