The role of the party secretary in firm corporate governance and business performance : evidence from listed enterprises in China

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The role of the party secretary in firm corporate governance and business performance : evidence from listed enterprises in China

 

Author: Li, Siu-kei
Title: The role of the party secretary in firm corporate governance and business performance : evidence from listed enterprises in China
Degree: D.B.A.
Year: 2008
Subject: Hong Kong Polytechnic University -- Dissertations.
Corporate governance -- China.
Corporation secretaries.
Boards of directors.
Department: Graduate School of Business
Pages: 199 leaves : ill. ; 30 cm.
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b2240601
URI: http://theses.lib.polyu.edu.hk/handle/200/4187
Abstract: In the course of the economic transformation of China, enhancing the corporate governance of listed companies merits special attention, and ranks high on the reform agenda. The role of the party secretary (the head of the Chinese Communist Party group in an enterprise), although crucial to the decision-making and corporate governance of an enterprise, has for various reasons received insufficient research attention until very recently. In cases in which the party secretary also holds the post of board chairman or CEO or both, the roles, powers, and operation of the posts will interact differently. According to agency theory, if the same person holds all of the top posts in a firm at the same time and represents both the owners and the management, then business performance will be adversely affected. In contrast, according to stewardship theory, if a manager, as a steward, holds all of the top posts concurrently and represents both the owners and the management, then the firm may achieve better performance, as there will be a unified command and unobstructed communication. A number of recent research findings have shed light on the issue of party secretaryship. Most of them, however, are not the product of direct research into the topic and are too broad. Research into party secretaryship is hindered by the difficulty in collecting valid, useful and relevant data about party secretaries, which may explain why there are few empirical studies that investigate the relationship among corporate governance, party secretary roles, and firm performance. This study investigates companies listed on the Shanghai-Shenzhen (SHSZ) 300 index (深滬300指數), which represent over 60% of the stock market capitalization in mainland China. The various permutations of party secretaries holding either or both of the posts of CEO and board chairman or other non-executive roles are categorized into six models and tested with six corresponding hypotheses. The study yields mixed findings. Agency theory receives significant support from two of the hypotheses, which posit that firms in which the party secretary holds only the post of board director or a non-executive post tend to have better performance. However, stewardship theory also receives support, in that the "party secretary trinity" (whereby the posts of party secretary, board chair, and CEO are all held by the same person) is associated with better firm performance. Stewardship theory is also partially supported by two other hypotheses that posit that firms in which the party secretary is also the CEO and firms in which the party secretary holds either or both of the top posts tend to show better firm performance, although only in terms of Tobin's Q. However, firms in which the party secretary also holds the post of board chairman tend to show worse firm performance, and the related hypothesis, which is based on stewardship theory, is not supported. This study generates few conclusive findings that substantiate a consistent relationship between party secretary leadership models and firm performance, but this is consistent with many studies of CEO duality. The institution of party secretary itself may or may not prevent the enhancement of firm performance, although notably firms with a party secretary trinity and firms in which the party secretary also holds a non-executive post display better business erformance. Nevertheless, in the course of economic transformation, the leadership arrangements in Chinese firms may need further review, adjustment, or reform to suit a firm's articular situation to achieve the most effective corporate governance. This research contributes to the literature by offering a categorization of different party scretary leadership arrangements that may provide a useful basis for further studies. The research proved to be challenging because of the great difficulty in collecting the data. To the uthor's best knowledge, this research is the first to provide models that link the institution of part secretary and firm performance.

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