مقاله سال ۲۰۱۷

The impact of politics on economic activities is well-documented. Previous studies generally suggest that when a firm’s executives are politically connected, the firm’s value increases (e.g., Faccio, 2006; Faccio et al., 2006; Fisman, 2001; Bunkanwanicha and Wiwattanakantang, 2009; Tang et al., 2016). The literature primarily examines how politics indirectly affects a firm’s performance. For instance, government officials can help a firm to receive government subsidies, low cost bank loans, favorable decisions in lawsuits, approval of initial public offerings, family firm success, and other benefits (Firth et al., 2011; Piotroski and Zhang, 2014; Xu et al., 2015). In the extant literature, government officials did not engage in the direct management of a firm.

In communist countries, each state-owned firm (SOE) has a communist party committee (CPC) to promote political ideology and labor harmony. On certain occasions, members of the CPC are involved with the management of the SOE by serving as directors of the board, supervisors of the supervisory board, or as senior executives of the management team. With the exceptions of Chang and Wong (2004) and Li and Chan (2016), little is known on the impact of such CPC direct control on an SOE’s performance.

Specifically, Chang and Wong (2004) report that a CPC control adversely affects accounting performance, but reduces the agency problem of an SOE. Li and Chan (2016) document that CPC control in terms of being a director, not supervisor or executive, can help to reduce an SOE’s stock price crash risk. It is unclear how such control affects other importantperformance attributes of an SOE. We fill this gap by studying the impact of a CPC control on the market value of corporate cash holdings.