Party control and corporate labour investment: evidence from China

Our focus of this paper is to gain a deeper understanding of how political parties engage with businesses. Specifically, we investigate how government intervention impacts the strategic decisions on hiring and subsequent labour investment efficiency in Chinese listed firms. A unique aspect of this study lies in the adoption of a difference-in-difference framework using the mandatory requirement by the China Securities Regulatory Commission to establish a Chinese Communist Party (CCP) branch in 2018 as an exogenous shock. We find a significant influence of the formation of CCP on employment growth accompanied by enhanced investment efficiency in labour. Further analysis reveals that understaffed firms primarily drive these outcomes. Moreover, our findings suggest heterogeneous effects across firms based on labour cost, state ownership, or audited by the Big Four accounting firms. Moreover, labour productivity has also improved because of the formation of a CCP branch. Finally, our results are robust to an alternative measure of labour investment efficiency. In conclusion, this research offers valuable insights into the considerable sway the government holds on corporate decision-making.