Politicization of corporate governance and firm value

We examine whether requiring a Party committee to lead corporate governance at listed state-owned enterprises (SOEs) affects firm value in China. We find that the market reacts positively to the inclusion of Party leadership in SOEs' governance structure and that the prospect of a crackdown on SOE corruption is likely to be the reason. The China governance model is strikingly different from other known models, and our findings suggest that a convergence of the corporate governance system of different countries due to globalization might not be the only outcome. • Market investors react positively to the inclusion of Party leadership in SOEs' corporate governance structure in China. • The positive market reaction is due to better monitoring of corporate management and the crackdown on SOE corruption. • Many firms have incorporated the Party leadership clauses in their corporate charters in China.