Party Organization Governance and Internal Control Quality in State-Owned Enterprises: Evidence From China

In the context of the Chinese government’s emphasis on party leadership of state-owned enterprises (SOEs), we examine the effect of party organization governance on internal control quality by employing a difference-in-differences model. We find that party organization governance significantly improves SOEs’ internal control quality. Reducing corporate violations, inhibiting earnings manipulation, and curbing on-the-job consumption are the main channels through which party organization governance enhances internal control quality. The positive effect is more pronounced for firms with lower executive shareholding and lower analyst attention. We revisit the role of party organization governance in emerging markets from the perspective of internal control quality.