Party Committees Participate In Corporate Governance,Agency Problem And Stock Price Crash Risks

The capital market serves as the main role in resource allocation in the context of modern economy and plays an essential role in the financing activities of enterprises.In the China's capital market,as a representative of emerging markets,the “soar and slump” of stock price is particularly noticeable.On March 23,2018,Trump initiated the Sino-US trade war,which exerted a great impact on the global capital market.US stocks plummeted across the board with the biggest one-day drop in the past one month and a half by then.Subsequently,the Shanghai Composite Index and the Shenzhen Composite Index fell by 3.39% and 4.02% respectively consequently,and the Asia-Pacific stock market suffered a full setback.The impact of the Sino-US trade war on China's capital market is comparable with financial crisis.With the continuation of the Sino-US trade war,the capital market is in a continuous and full-scale downturn.At the national level,the recent slump of stock prices has greatly impeded the stable and healthy development of China's financial market,becoming a latent hazard for the smooth operation of China's economy.Therefore,the risk of stock price crash,as an important indicator of the stability of the capital market,has caught more attention of relevant regulators,investors and scholars.The prior studies have found that the company's stock price crash risk is largely affected by the internal governance of the company,especially the agency-related problems.The more serious the agency-related problems are,the greater risk of the stock price crash in the future will be.Under the background of the new era,Chinese enterprises are constantly exploring the governance model with Chinese characteristics.This model mainly features the embedded governance of the party committee.A series of laws and policy documents also clearly define the core role of the party committee in corporate governance.In the 19 th National Congress of the Communist Party of China in 2018,guidance was given on the involvement of party committee in the corporate governance of state-owned enterprises.As a governance model with Chinesecharacteristics,the mechanism that the party committee gets involved in corporate governance can play a role of steward and restrict the private interests of insiders and major shareholders(Ma,2013).Representing the party and the country,the party committee gets involved in corporate governance to guarantee the development of state-owned enterprises.Can this mechanism promote the steady development of state-owned enterprises? Furthermore,as the representative of the party,can the members of the party committee stay uncorrupted for the public and play the role of“steward” to reduce the risk of stock price crash?Based on the information asymmetry theory and the bad news hiding hypothesis,the present paper selects the state-owned listed companies from 2008 to 2016 as the research sample,and analyzes the relationship between the involvement of party committee in corporate governance and the risk of stock price crash from the perspective of agency problems.The main conclusions of the current study are as follows:(1)the involvement of party committee in corporate governance can reduce the risk of stock price crash for a company.This is mainly because the party committee's involvement in corporate governance can strengthen both the internal and external supervision and restrict the managers' private-interest behaviors.Accordingly,the risk of stock price crash can be reduced;(2)the more serious the company's agency-related problems,the higher the risk of stock price crash.In this sense,the involvement of party committee in corporate governance can reduce the risk by alleviating the agency problems.For a company,the more serious the agency-related problems,the worse the quality of information disclosure and the weaker their motivation.The principle of “placing cadres under party supervision” can supervise and balance the insiders' private-interest behaviors,which organically coordinates the various subjects involved and contributes to the balance of power(Wang,2014).Thus,the opportunistic behaviors of management can be minimized and the agency-related issues between management and shareholders can be alleviated,and the risk of stock price crash can be reduced consequently;(3)both internal and external governance will have an impact on the effectiveness of the involvement of party committees in corporate governance.State-owned enterprises promote the good independent directorsystem and the involvement of party committee participation in corporate governance at the same time,which are the internal governance systems.The integration of the two systems can further guarantee the company's internal supervision and enhance the restrictive effect of the involvement of party committee in governance on the risk of stock price crash.On the other hand,the good external supervision,especially the formal systems such as the legal environment,can function as an alternative to internal governance mechanisms,resulting in the crowding-out effect.Above all,the present study is conductive for both the academic and practical circle to correctly evaluate the economic effects of the involvement of party committee in corporate governance.Meanwhile,through the effort to explore the mechanism of the company's stock price crash risk,this paper provides policy suggestions for the current government and related institutions to complement bailout,and for state-owned companies to further prevent the risk of stock price crash.