The Political Minority Parties (PMP) in China are non-Communist political entities operating under the leadership of the Chinese Communist Party (CCP). As integral components of the United Front—a coalition led by the CCP—these parties occupy a unique position within China's "multi-party cooperation and political consultation" framework. Their members frequently assume advisory and oversight roles within the government, notably participating in the Chinese People's Political Consultative Conference (CPPCC), a principal body for political consultation. Predominantly comprising the social elite, these parties include intellectuals, professionals, academics, business leaders, and cultural figures. This study examines the impact of PMP-affiliated executives on the Environmental, Social, and Governance (ESG) performance of publicly listed Chinese companies from 2010 to 2022. Our findings reveal a significant negative correlation between executives' PMP affiliations—both at the aggregated firm level and the individual executive level—and the firms' ESG ratings. This effect is especially pronounced in non-State-Owned Enterprises (non-SOEs). We interpret PMP affiliations as a unique political connection that offers disproportionate benefits relative to the minimal responsibilities borne by its members. Executives with such affiliations potentially influence strategic decision-making within firms. Consequently, companies with a higher ratio of PMP executives may not necessarily prioritize political agendas that align with top-down ESG initiatives. Instead, these executives might focus on other aspects of company performance or governance to balance shareholder interests, potentially at the expense of ESG endeavours. This orientation leads to a diminished motivation to pursue resources through ESG activities. Our mechanism analysis supports this interpretation. Specifically, the negative association between PMP affiliations on ESG performance is relatively weaker in companies where executives encounter greater political pressure—evidenced by a higher proportion of executives with congressional deputy and increased nationalist rhetoric in annual reports—possess more social capital, enjoy superior corporate reputations, and receive more subsidies. Conversely, the effect is more pronounced in firms exhibiting higher frequencies of independent director dissent. Analysing both external and internal governance environments, we find that the relationship between executive PMP affiliation and firms' ESG performance is significantly moderated by factors such as regional marketization, legal system development, government-business relations, environmental regulation, and the presence of firm-level ESG committees. Further research indicates that the proportion of PMP members on a company's board and among independent directors substantially reduces the firm's ESG performance. Additionally, within the cadre of PMP executives, those holding leadership positions exert a more significant negative impact on firms' ESG scores compared to regular party members. Notably, companies with a higher proportion of PMP executives demonstrate even poorer ESG performance within sample firms with PMP executives. To validate the robustness of our results, we employ concurrent and lagged PMP dummy variables as alternative independent variables, utilize averages from multiple ESG agencies as alternative dependent variables, and conduct propensity score matching to address potential sample selection bias. We also perform temporal dynamics tests concerning the appointments of PMP executives, directors, and independent directors to strengthen the causal inference between executives' PMP affiliations and firms' ESG performance. Our findings underscore that PMP executives, benefiting from their unique political standing coupled with reduced political pressures, exhibit lower incentives for strategic ESG engagement. This study sheds light on the complex interplay between political embeddedness and corporate governance in China, particularly in the context of ESG performance.

Analyzing data from 3,616 Chinese listed firms, we find a strong positive relationship between policy uncertainty and firms’ exchange rate exposure. This result remains robust after controlling for macroeconomic conditions and addressing endogeneity issues. Notably, policy uncertainty’s impact is significantly stronger for firms with a higher degree of international involvement and for poorly-governed firms. Interestingly, firms use financial hedging more intensively and reduce their operational hedging in high-uncertainty periods. Our results suggest that policy uncertainty exacerbates the impact of currency movements on firms’ financial performance, as firms become increasingly involved in international operations. Consequently, firms should strengthen their corporate governance and make effective use of hedging tools.

When examining corporate governance in China, it is crucial to recognize the unique socioeconomicstructures and legal systems at play. The mechanisms of corporate governance theorized in the West might not necessarily have the same impact in China. In particular, given China’s distinct feature of the domestic economy and its socio-political structure, the results of introducing a hostile takeover system might not align with common anticipations that scholars and policymakers in China and elsewhere broadly share. In greater detail, this paper highlights the significant market imperfections in the Chinese economy, stemming from information asymmetry, imperfect product markets, and capital-market inefficiency. These market imperfections suggest that an active hostile takeover regime might not function effectively in China, as its disciplinary mechanism operates successfully in other advanced countries. Additionally, this paper underscores that due to China’s distinctive features—including its state-owned corporate landscape, the dominance of controlling shareholders in private corporations’ ownership structures, and its unique brand of socialism—the introduction of an active takeover regime could produce unintended consequences in the Chinese economy. Overall, challenging the prevailing perspective, I posit that within the Chinese hostile takeover framework, corporate governance is not as influential as one might assume.

The 2020 Holding Foreign Companies Accountable (HFCA) Act will force China-based firms to delist from U.S. exchanges if China fails to permit audit inspections during a two-year period. The Act also requires such firms, as soon as China blocks such inspections, to disclose ties to the Chinese party-state. We first explain why the delisting provisions, while well-intentioned, may well harm U.S. investors. We then turn to the disclosure provisions, explaining that they appear to be motivated by a desire to name-shame Chinese firms rather than to protect investors. While China-based firms do pose unique risks to U.S. investors, the Act fails to mitigate—and may well exacerbate—these risks.

The study finds that analyst skill plays a key factor to explain the complicated and chaotic relation between analyst coverage and external governance. We divide analysts into multiple skill groups by GMM (Gaussian mixture model) method, and explore the effect of the coverage by skilled analysts on earnings management in Chinese listed companies. The results indicate that only the coverage of skilled analysts shows a significant negative correlation with earnings management. Heterogeneity analysis reveals that the negative relationship between the coverage of skilled analysts and earnings management is primarily observed in non-state-owned companies, those with weaker external audits, and smaller-scale firms. The conclusion remains robust after considering endogeneity issues. The findings of this study suggest that incorporating analyst skill contributes to a better understanding of the mechanisms through which analysts influence corporate governance. It also highlights that the role of analysts in corporate governance cannot be generalized.

Utilizing the removal of the bank lending interest rate floor (IRFD) in China as an exogenous shock of banking liberalization, we find that IRFD leads to a significant rise in firms’ cost of equity capital, which is consistent with the prediction from the MM theory. The identified effects are more pronounced among firms with weaker ex-ante corporate governance and more severe ex-ante agency problems. We also find that IRFD witnesses an increase in the amount of acquired bank loans, a decrease in the average interest rate, and an increase in free cash flow. Further evidence also suggests IRFD provokes a drop in firms’ investment quality. Overall, our findings highlight an unexplored role of banking sector deregulation on firms’ cost of equity capital.

This study provides the first empirical evidence on the relationship between the chairman of the board of directors (COB) and corporate financial performance. Using a sample of Chinese A listed firms between 2008-2017, we find reliable evidence that the COB turnover improves corporate financial performance. Moreover, the existence of a majority shareholder (Majority) positively influences corporate financial performance, while firm nature (private majority shareholder or public majority shareholder)(Private) may not.

Purpose – The aim of this paper is to provide additional insights on the association between real earnings management (REM) and crash risk, particularly from the perspective of an emerging market economy. It also examines the moderation role that internal and external corporate governance may play in this area. Design/methodology/approach – Relying on archival data from the RESSETand CSMAR databases over a timeframe from 2010 to 2018 of China listed company, the authors test the hypotheses by regressing common measures of crash risk on the treatment variable (REM) and crash risk control variables identified in the prior crash risk literature. The authors also introduce monitoring proxies (internal controls as an internal governance and institutional ownership as an external governance) and assess how effective internal and external governance moderate the relation between REM and stock price crash risk. Findings – The results suggest firms with higher REM have a significantly greater stock price crash risk, and that this association is mitigated by external monitoring. That is, greater institutional ownership, particularly pressure insensitive owners, mitigates the impact of REM on stock price crash risk. However, internal control does not mitigate the association between REM and stock price crash risk. Originality/value – Following the passage of the Sarbanes–Oxley (SOX) Act, prior research has documented an increase in the use of REM and a positive association between REM and cash risk. The authors demonstrate that they persist in one of the largest emerging markets where institutional regulations, market conditions and corporate behaviors are different from those in developed markets. Also, the assessment of the moderation effect of internal and external governance mechanisms could have meaningful implications for investors and regulators in Chinese and other emerging markets.

Minority shareholder activism (MSA) on online interactive platforms is a new form of corporate governance in China. This paper investigates whether and how dividend-related MSA affects corporate dividend policies. We find listed firms are more likely to pay dividends and raise payout ratios with MSA. Our baseline findings are robust to a variety of robustness checks. We establish a causal relationship between MSA and future dividend payouts, with both instrumental variable approach and PSM-DID approach, and we provide evidence to show the increasing effect of MSA can be explained by exit threat and voting attendance. Our focused MSA complements the formal voting rights of minority shareholders and overcomes the absence of institutional investor monitoring. Overall, our findings suggest that minority shareholders can effectively monitor management when they are empowered with voice in the age of information.

This paper identiffes culture as an important factor affecting corporate cash holdings by using China and its national culture, Confucianism, as the setting. We find that firms located in regions with stronger Confucian culture hold persistently higher levels of cash. We employ an instrumental variable to draw causal inference. The culture effect is stronger for more ffnancially-constrained and riskier ffrms, suggesting precautionary motives as the underlying mechanism. We ffnd that the culture effect remains intact after controlling for corporate governance heterogeneity, which rules out the agency motives. Lastly, ffrms’ operating performance indicates that high cash holdings is an efffcient outcome.