Does party organization construction improve chinese banks' stability? Evidence from a new textual index

According to China's newly revised Company Law (2024), companies are required to establish Communist Party of China (CPC; also, Party) organizations because Party-related activities are crucial for banks' stability. This study innovatively constructs a textual indicator to measure the development, governance, and education of the CPC organization based on annual reports. Then, we investigate the impact of Party organization construction on bankruptcy risk in 16 publicly listed banks from 2017 to 2022. Statistical analysis reveals that banks are gradually making efforts to enhance and improve internal Party organization construction. Moreover, overall Party organization construction reduces bank failure risk by inhibiting banks from engaging in high-risk business, such as interbank and shadow banking business. Compared with the Party organization construction dimensions of development and governance, the education of Party organization can better reduce bankruptcy risk. Furthermore, this reduction effect is more pronounced for state-owned banks, bigger banks, banks with profitability pressures and under financial distress, and during the pandemic period. This study expands the study of bank failure risk from the corporate governance perspective, showing that the Party organization construction contributes to safeguarding financial stability.