The impact of party building on bank failure: Evidence from China.

Political influence has been proved to have an undeniable impact on firms' operation. As the ruling party in China, CPC plays a political role in engaging in firms' daily performance. However, little has been done to examine the influence of party building on bank failure risk. This article is aiming at creating a new metric to describe the effort that banks make on party building and then to explore its relationship with banks failure risk. Trough researching in 15 formal documents published on the official website of Communist Party of China (CPC), we find that they mainly focus on three perspectives of party building, including development, governance and education. We also notice the textual message in banks' annual reports that also mentions party building. Therefore, this article first use Latent Dirichlet Allocation (LDA) model and official party building documents to create party building topic corpuses from three perspectives, including development, governance, and education. Secondly, we measure the degree of banks' party building activity by comparing segmented text with words in topic corpuses. Then we define a new metric DGE to comprehend three aspects of party building, in which D denotes development, G denotes governance and E denotes education. We discover that the strengthening of CPC building in a bank has a positive impact on its performance of reducing bank failure risk. Both in terms of the overall DGE score and sub-DGE scores, namely development (D) score, governance (G) score, and education (E) score, they all decrease the bank failure risk. The findings have important policy implications in motivating banks to engage more in party building activities. [ABSTRACT FROM AUTHOR]