The Communist Party Committee and corporate takeovers

Existing empirical studies on Chinese corporate governance ignore the role of the Communist Party of China (CPC) in state-owned enterprises (SOEs) over which it has direct control. This study examines a unique corporate governance mechanism in Chinese SOEs: the co-existence of party committee and board of directors, and considers the monitoring effects of the party committee on the value creation of Chinese state-owned acquiring firms. I show that acquisitions with their own party committees create significantly higher market value for acquiring firms, especially for acquirers with fewer external monitoring mechanisms, while value creation remains in long-term, post-event periods. I further document that the collective decision can contain the “empire building” of mangers and reduce the premium is the source of this value creation, while the findings remain unchanged after controlling for endogeneities.