Embedding Party Organizations in Corporate Governance and Its Impact on Labor Investment Efficiency: Evidence from Private Enterprises in China

This study examines the impact of party organization embedding on labor investment efficiency in private enterprises in China. While prior research has primarily focused on the supervisory, resource, and social functions of party organizations, this study introduces labor investment efficiency as a new dimension of analysis. Using data from A-share private listed firms from 2005 to 2022, the findings indicate that party organization embedding enhances labor investment efficiency by mitigating both overinvestment and underinvestment in labor. The results remain robust after conducting propensity score matching, addressing selection bias, and employing alternative proxies for labor investment efficiency. Further analysis reveals that this efficiency improvement primarily stems from reduced policy uncertainty and alleviated financing constraints rather than resolving agency conflicts. By decomposing labor investment inefficiencies into four subcategories—overhiring, underfiring, underhiring, and overfiring—this study finds that party organization embedding mainly reduces excessive hiring and layoffs, leading to more stable workforce adjustments. Additionally, embedding in corporate governance structures, including senior executives, directors, and supervisors, all contribute to improved labor investment efficiency. These findings provide novel insights into the political governance mechanisms of private enterprises and their implications for corporate labor management. From a policy perspective, while party organization embedding enhances labor investment efficiency, excessive political intervention may introduce constraints on managerial autonomy. Future research could explore qualitative dimensions to further investigate the nuanced interactions between political oversight and corporate decision-making.