LawFin Research Seminar: Curtis Milhaupt (Stanford Law School)
Speaker: Curtis Milhaupt, Stanford Law School, ECGI and ALI
Title: Party Building or Noisy Signaling? The Contours of Political Conformity in Chinese Corporate Governance (joint work with Yu-Hsin Lin, City University of Hong Kong)
In 2015, as part of a program to reform China’s state-owned enterprises (SOEs), Guiding Opinions were issued requiring SOEs to amend their corporate charters to formalize and elevate the leadership role of the Chinese Communist Party in their corporate governance. We empirically examine the patterns of “party-building” (dangjian) charter amendments in the four-year period from 2015-18 to better understand the contours of political conformity in Chinese corporate governance. Consistent with prior theoretical predictions (Milhaupt and Zheng 2015), not all SOEs abided by the dangjian policy, and although privately owned enterprises (POEs) were not subject to the Guiding Opinions, a significant number of POEs, particularly large, politically connected ones, also amended their charters to add party-building provisions.
The model provisions on the party’s role in corporate governance circulated pursuant to the Guiding Opinions can be divided into three groups: symbolic, decisionoriented and personnel-oriented. We find wide variation in the pattern of adoptions. SOEs did not uniformly adopt the entire panoply of recommended provisions. In particular, SOEs that cross-list on the Hong Kong Stock Exchange adopted less politically intrusive corporate governance provisions than others. And POEs that amended their charters to include party-building provisions were far more likely to adopt symbolic provisions than decision-oriented and personnel-oriented provisions, suggesting that the amendments were undertaken to signal fealty to the Chinese Communist Party without changing substantive corporate governance practices.
We conclude by exploring a number of potentially far-reaching implications for Chinese corporate governance raised by our findings.
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