The effect of disciplinary inspection commission participation on the financing constraints of Chinese state-owned enterprises: a circular economy perspective

ABSTRACT Supported by the principal-agent theory, higher-order theory, and financing constraint theory, this study aimed to examine the effect of disciplinary inspection commission (DIC) participation in BG on Chinese state-owned firms’ financing constraints. This relationship was also compared between state-owned and private firms, both of which are striving towards a circular economy. Data from a sample of A-share listed Chinese firms on the capital market from 2013 to 2020 was put through regression analysis and robustness testing. The analyses revealed that the involvement of DICs in BG has more a detrimental effect on private firms’ financing constraints. These findings are helpful for enterprises to rationally allocate and play the role of the DIC based on specific scenarios. The findings further provide an empirical basis for government departments and financial institutions to develop circular policies to alleviate corporate financing difficulties.


Introduction
In the 21st century, the participation of the Disciplinary Inspection Commission (DIC) in BG has become a significant term for the Chinese Communist Party, even emerging as one of China's defining traits in the field of CG (Xiu et al., 2022).The commission's participation in BG primarily refers to the integration of the commission in the form of a secretary and deputy secretary who represent the commission's mission and will in the management activities of enterprises.Their integration helps to better supervise the management of the enterprise.In its supervisory role, the DIC participates in various activities and ways to understand firms' ideas, style, conduct, and major decision-making process (Kakabadse et al., 2010).
In 2017, the clarity of the Party's leadership and CG structure was emphasized, highlighting the party organization's role as the grassroots CG organization that consolidates and operates state-owned enterprises (SOEs).The role of the party organization as the political and leadership core at the grassroots level was also underscored (Xie et al., 2022).Moreover, the involvement of the Development and Reform Commission in the management of the BODs has improved the board's control and dissuasion of firm managers (Su et al., 2013).These actions have increased the board's authority, which could partially affect firms' financing.Taddei et al. (2022) identified the challenges and opportunities associated with circular supply chains and highlighted the potential of Industry 4.0 technologies and the circular economy to address these challenges.To effectively implement circular economy initiatives, stakeholder engagement is crucial for companies as it can create shared value, improve transparency, and enhance credibility in sustainability reporting (Appolloni et al., 2022).However, the complexity and interconnectedness of circular economy initiatives may render traditional stakeholder engagement methods ineffective (D'Adamo, 2022).To ensure that circular business models align with stakeholder needs and expectations, companies should involve stakeholders in the design and implementation process, as recommended by Acerbi et al. (2023) and Su et al. (2013).CG is crucial for companies to effectively engage with stakeholders and implement circular economy initiatives.Transparency and accountability in decision-making processes help build trust and a positive reputation, which is crucial for successful implementation of circular economy initiatives (Lin et al., 2020).
Finally, financing constraints can present challenges for companies seeking to implement circular economy initiatives and engage effectively with stakeholders.Firms' financing constraints refer to the limitations companies face with regard to financing (Y.Zhang & Wu, 2020).X. Liu et al. (2018) explain that the significant upfront costs of circular practices can act as a barrier to firms.As such, the adoption of sustainable and circular practices may face challenges due to financing constraints.Nevertheless, innovative financing solutions, like green bonds or public-private joint ventures, may be effective alternatives in mitigating this issue.These financing models can enable Chinese SOEs to invest in sustainable and circular practices (L.Wang et al., 2021).Companies can also engage with stakeholders to optimize resources and minimize waste, according to Flynn et al. (2019).
Through regular inspections and audits, the DIC has the ability to enforce regulations and ensure compliance with environmental standards, which promotes sustainable and circular practices.Indeed, the DIC's participation is crucial in identifying areas that need improvement and offering guidance to companies on how to adopt sustainable or circular practices (Y.Zhang, Xing, et al., 2020).Overall, Chinese SOEs can promote sustainable and circular development by addressing the challenges posed by financing constraints and leveraging the potential of DIC participation.They can do so not only within their operations but also across their supply chains and the broader economy, as emphasized by Lin et al. (2020) and L. Chen et al. (2021).
In recent years, exploring how a firm's BG influences its financing constraints has become a valuable research theme with practical implications for enterprises.The financing constraints of listed companies are closely related to their management, and smaller companies tend to face greater constraints (Cull et al., 2015).To mitigate financing constraints, mixed equity can help listed companies obtain more bank loans, equity financing, and commercial credit, while non-SOEs can establish economic bonds to address financial disadvantages and reduce bank discrimination for political reasons (S.Lu & Chen, 2017).
Despite the attention given to macroeconomic factors (e.g.monetary policy, financial development, and government behavior) and the impact of corporate scale, financial managers, mixed equity, and property rights on firms' financing constraints, there has been relatively little research by scholars on the participation of DICs in BG.This study highlights this gap and suggests that DIC participation is an important CG variable that explains financing constraints.
There are several aspects of this study that make it original and valuable.Firstly, it focuses specifically on China's SOEs, which constitute a crucial and distinctive sector of the Chinese economy.This novel context has not been extensively studied in previous research.Secondly, the study highlights the importance of DIC participation in promoting circular economy practices and addressing financing constraints in China.This is an emerging and significant area of study that has not been widely investigated in the literature to date.Thirdly, the study combines two important research areas -circular economy and DIC participation -to investigate their relationship within the context of China's SOEs.This intersection has been relatively unexplored by previous scholars.Finally, the study employs multiple regression analysis, which is a rigorous method for identifying causal relationships, to examine the connections between DIC participation, circular economy practices, and financing constraints in China's SOEs.
In addition, this study employed several theories to establish a strong theoretical foundation.Firstly, the higher-order theory builds on the principal-agent theory by recognizing that agents have their goals and values, which may not align with those of the principal (Cancela et al., 2020).Hence, the governance of the board of directors (BODs) can significantly impact the financing constraints of the firm.Secondly, the principal-agent theory suggests that there may be a misalignment of interests between principals and agents due to information asymmetry, different risk preferences, and divergent goals (Steinle et al., 2014).This misalignment can create agency costs such as monitoring and bonding costs that affect the financing constraints of the firm (L.Chen et al., 2018).Next, the financing constraint theory posits that firms with limited access to external financing are likely to experience lower levels of growth and economic performance (Kim, 2020).SOEs may have an advantage because they may have greater access to government funding or preferential treatment from financial institutions, which can alleviate some of the financing constraints that private enterprises may face (Gong, 2021).Therefore, compared with SOEs, DIC participation in BG has a more significant negative adjustment effect on firms' financing constraints.This study's unique contribution is its integration of these theories to establish a comprehensive understanding of the relationship between DIC participation, circular economy practices, and financing constraints in China's SOEs.
Our preliminary findings indicate that the participation of DIC has a significant negative effect on the financial restrictions of listed companies.We also classified the sample companies based on their shareholding nature to better understand the relationship between DIC participation in BG and enterprise financing constraints.By doing so, we aimed to provide practical solutions for addressing financing constraints.Indeed, this study has practical significance as it explores the influence of the commission that participates in BG on enterprise financing constraints, considering the impact on different equity properties.The research results can serve as a reference for enterprises to alleviate financing constraints and as an experiential basis for government departments and financial institutions to improve policies related to enterprise financing.
The structure of this study is outlined as follows.In Section 2, the theoretical foundation is presented, offering an understanding of the theories applied to elucidate the link between the involvement of the DIC and financing constraints in corporations.Section 3 explains the methodology and the sample studied, while Section 4 provides an overview of the results.Sections 4 and 6 discuss the implications and limitations of the study and present the conclusions, respectively.

Theoretical background
According to Flynn et al. (2019), effective corporate governance (CG) practices can facilitate stakeholder engagement and collaboration by providing a decision-making framework that considers the interests of all relevant stakeholders, including shareholders, employees, customers, and the environment.Their study emphasizes that transparency, accountability, and stakeholder participation are essential elements of effective CG practices, which can also promote sustainable practices such as the circular economy (Di Vaio et al., 2023;Flynn et al., 2019).
In addition to promoting sustainable practices, CG practices can align the interests of stakeholders with those of the company, encouraging a long-term, sustainable approach to business.To achieve this, companies can develop sustainability policies and practices (Cozza et al., 2023) and adopt metrics and reporting frameworks that enable stakeholders to track progress towards sustainability goals (Di Vaio et al., 2023;Yuan et al., 2020).
In the context of circular economy and Industry 4.0, effective CG practices are crucial for promoting stakeholder engagement and collaboration (Acerbi et al., 2023;Flynn et al., 2019).By adopting transparent, accountable, and participatory decision-making processes, companies can build trust with their stakeholders and work together to create a more sustainable future.Overall, research highlights the importance of effective CG practices in promoting stakeholder engagement and collaboration for sustainable development.

DIC participation and firm financing constraints: higher-order and principal-agent theory
The DIC is entrusted with supervisory responsibilities by the Party and the government, serving as a deterrent to senior executives and board members (Zou et al., 2015).However, the loss of independence may compromise the function of the BODs (Z.Lu & Zhu, 2020).The objective of this study was to investigate whether the participation of the DIC in board governance (BG) impacts firms' financing constraints.To achieve this objective, we employed various theories that can potentially explain and support this relationship.
Firstly, we considered the higher-order theory to be suitable for this study.This theory offers a general framework for analyzing complex systems by breaking them down into smaller, more manageable parts (Ferreira et al., 2009).Mainly, it posits that human beings have limited rational boundaries instead of perfect rationality (Cong & Howell, 2021;Floridi & Chiriatti, 2020).In the context of promoting a circular economy (Cozza et al., 2023) through DIC participation and financing constraints, the higher-order theory can identify the various factors that contribute to the success or failure of circular initiatives in SOEs (Wing et al., 2006).Specifically, the higherorder theory suggests that agents' behavior is influenced by their beliefs about the behavior of other agents in the system (X.Tan et al., 2019).In the context of the BODs, a director's participation can influence the behavior of other directors, and this can affect the financing constraints of the company (H.Chen et al., 2020).We believe the existence of senior management to be an important theoretical basis, whereby the role of senior management supervision in corporate management is a valuable issue to consider.
Secondly, we adopted the principal-agent theory, which examines the effects of information asymmetry on firms' financing constraints.Asymmetric information is a common occurrence in enterprises, where some individuals possess information that others do not, creating an imbalance in decision-making power (Steinle et al., 2014).This theory is particularly relevant to the analysis of SOEs, where the government acts as the principal and the managers and employees are the agents (Lin et al., 2020).By exploring the incentives and motivations of various actors in embracing a circular economy, the principal-agent theory can provide insights into how to align these incentives to achieve desired outcomes.Moreover, the principal-agent theory suggests that a conflict of interest may arise between the principal (e.g.shareholders) and the agent (e.g. the BODs) in a CG structure (Q.Liu et al., 2021).In the context of our hypothesis, the participation of the DIC in the board may lead to conflicts of interest that can affect financing constraints (L.Chen et al., 2018).For instance, if a director has a personal interest in a particular financing option that may not be in the best interest of the company, this could create a conflict with other directors who prioritize the company's best interest.
By supervising senior executives and principals, the organization can avoid risks and reduce financing costs (Bukair & Rahman, 2015;Fan, 2018).Combining senior management and principal-agent perspectives, this study argues that internal control is essential to financial control, with the board's main function being to supervise finances.Internal control institutions such as DIC can improve financial supervision efficiency (Baxter et al., 2013), reducing financing constraints.
The sustainability strategy considers environmental, social, and economic factors to ensure an organization's long-term sustainability (Choi et al., 2007;Flynn et al., 2019;Stiles, 2001).Director participation on the board can impact company sustainability and financing constraints.For instance, if a director who prioritizes environmental sustainability is appointed, it could shift the company's priorities and enhance its ability to obtain financing.However, this shift may not align with the interests of investors or lenders, negatively impacting financing constraints (L.Wang et al., 2021).
According to Matsa and Miller (2013), dissenting directors can significantly hinder the decision-making process of firms by creating conflict and reducing the cohesion of the board.This can lead to delays in decision-making, suboptimal outcomes, and decreased firm value.Additionally, the negative impact of dissenting directors is more pronounced when the board is larger and when the dissenting director is more influential.For example, if a director with a different perspective on financing is appointed to the board, he/she may incur conflicts with other directors who prioritize the company's financial performance, resulting in inefficiencies and delays in decision-making, which could negatively impact the company's ability to obtain financing.Fan's (2018) study suggests that larger boards, which may increase the likelihood of board participation, can lead to greater financing constraints for companies.This is exemplified by the Enron scandal, where board members involved in fraudulent activities led to severe financing constraints.Similarly, Sarikaya and Ozbay (2016) argue that excessive board participation can lead to conflicts and inefficiencies that negatively impact financing constraints.Specifically, they find that larger boards and boards with a higher proportion of non-executive directors are associated with higher levels of financing constraints, limiting a firm's ability to access capital and invest in growth opportunities.
Y. Li et al. (2020) found that party embedding enhances CG in SOEs under 'two-way entry, cross-appointment' systems.S. Chen and Lu (2014) found that party embedding can raise the premium level of selling equity or state-owned assets during mergers and acquisitions.However, L. Chen et al. (2018) suggest an inverted U-type relationship between the extent of party organization participation in governance and the level of internal control at the enterprise.
Based on the literature, it appears that the DIC's involvement in CG can have several positive effects.First, it can enhance the supervisory responsibilities of the BODs.Second, by ensuring the relevant independence of the Central Commission for discipline inspection, its decision-making independence within the company can be strengthened, leading to more effective and quality work and a reduction in financial pressure.Third, there is a good synergistic effect between DIC participation in BG and other governance behavior within the board, leading to a strong inhibitory effect on management's opportunistic surplus behavior via the dual identity of 'manager' and 'government officer.'Fourth, DIC participation in the board can fill administrative loopholes, properly supervise executives with political backgrounds, and form a benign synergistic effect with existing board supervision.Fifth, DIC participation can weaken the company's information asymmetry and agency problems to some extent, from the perspective of the higher-order theory and principal-agent theory.Finally, the DIC's involvement in BG can also have a deterrent effect on management, which can improve risk avoidance and reduce financing constraints.Overall, the DIC's participation in CG can provide an important supervisory function over senior executives of SOEs and improve the governance structure.The hypothesis was developed as follows: H₁: The participation of the DIC in the board is negatively related to SOEs' financing constraints.

Different effects of ownership structure based on the financing constraint theory
China's economy is dominated by the state, with both SOEs and private enterprises playing important roles (Q.Liu et al., 2021).However, there are significant differences in CG, operating efficiency, and resource allocation among listed companies with different equity properties, which provides a new perspective for research (D.Li & Shen, 2022).As such, this study aimed to compare the negative regulatory relationship of DIC involvement in BG with financing constraints between state-owned and privately owned firms.
According to the financing constraint theory, a firm's level of financial limitations is inversely correlated with its level of information due to the difference between internal and external financing expenses (Zhu & Jiang, 2019).This theory provides a framework to understand how financing constraints can limit a firm's ability to invest in new projects or initiatives.In the context of embracing a circular economy, financing constraint theory can identify the financial resources necessary to implement circular economy initiatives in SOEs and how these resources can be secured (L.Wang et al., 2021).
Private firms face more financial and development limitations than SOEs when it comes to equity financing, as listed financing often has to go through complicated approval processes and strict profit requirements.Additionally, the cost of equity financing is high, which further restricts the financial capacity of private companies.L. Wang et al. (2021) concurred that private enterprises may face more significant financing constraints than SOEs due to their lack of access to resources and credit, as well as their relatively weaker financial positions compared to SOEs.Financing constraint theory suggests that companies will prioritize borrowing from banks with lower financing costs over the capital market (Hall et al., 2016).
In addition, sustainable development is the trend of today's era.The sustainable development strategy focuses on the long-term sustainability of an organization, taking into account environmental, social, and economic factors (Flynn et al., 2019;Macedo-Soares et al., 2017;Steinle et al., 2014).At the same time, sustainable development can be used as a metric to measure the negative impact of private enterprises versus SOEs.For example, private enterprises may be more likely to prioritize short-term financial gains over long-term sustainability.Such non-SOEs with profit maximization as the main business objective may be more likely to engage in unsustainable practices, such as overexploitation of natural resources or disregard for environmental regulations, in order to maximize their short-term profits (Cancela et al., 2020).A real-world example is the case of Volkswagen, where the company's private ownership structure and shortterm financial goals led to a scandal involving emissions cheating that harmed the environment and damaged the company's reputation.
Private enterprises may also have more incentives to innovate and create value for their stakeholders due to their ownership structure and competitive nature.Private firms are often owned by individuals or groups who have a significant stake in the success of the company (He & Huang, 2019).Therefore, they may be more motivated to take risks and pursue innovative strategies that can create value for their stakeholders.Moreover, private firms often operate in highly competitive environments, which can drive them to innovate and differentiate themselves from their competitors (Flynn et al., 2019;Hsu, 2006).In contrast, SOEs may face less competition and may not have the same incentives to innovate and create value for their stakeholders (J.Li et al., 2018;Lin et al., 2020).Nonetheless, SOEs may have more incentives to prioritize sustainability due to their social responsibility and accountability to the government and the public (Cancela et al., 2020;Flynn et al., 2019).
Overall, the negative impact of private enterprises may be more significant than that of SOEs.As a result, private enterprises need to prioritize sustainability and long-term value creation in order to mitigate their negative impact and improve their financing prospects.On the other hand, SOEs can serve as a model for sustainable and socially responsible business practices that can benefit both the environment and the economy (L.Wang et al., 2021;Lin et al., 2020).
Indeed, research by X. Zhang et al. (2016) on the Chinese market found that financing restrictions have a greater impact on private firms and capital-intensive firms, resulting in more pronounced negative effects on their performance.State funds, can be a successful solution to address the capital issue in the growth of private firms (H.Chen et al., 2020;Zou et al., 2015).Empirical data from various privately listed firms in China between 2007 and 2018 further show that SOE capital injection can significantly alleviate financing challenges faced by Chinese private enterprises (Y.Zhang & Wu, 2020).
SOEs in China are more politically connected to the government than private enterprises (Giosi & Caiffa, 2021;Su et al., 2013).As such, SOEs can benefit from soft budget constraints and reduce financing costs through government-bank relationships.When SOEs face financial problems, the state and banks provide loans and financial assistance to ensure their smooth operation, investment, and other activities (Tang et al., 2020;Z. Lu & Zhu, 2020).In contrast, private enterprises do not have this convenience, and their financing, investment, and operation activities mostly follow market principles, making them more susceptible to higher financing constraints (Q.Liu et al., 2021).Additionally, SOEs play a significant role in the growth of China's national economy, and their organizational structure is often solid, giving them an advantage over private firms (Flynn et al., 2019;Lin et al., 2020).
The DIC, which is integrated into all aspects of CG, has a significant impact on how SOEs behave (C.Wang & Meng, 2020).However, the establishment and governance participation of the DIC in private enterprises have been weak.While there are some variations across different equity properties in the impact of the commission on the financing constraints of enterprises, the commission's involvement in BG can ultimately improve the governance level of listed companies, affecting enterprise financing.Specifically, it can reduce the financing constraints of private organizations more compared to that of SOEs with strong financial situations.The hypothesis was developed as follows: H₂: Compared with SOEs, the DIC's participation in BG has a more significant negative adjustment effect on private firms' financing constraints.
Table 1 shows the conceptualization of this study.
Figure 1 illustrates the theoretical framework, as developed by the authors.

Sample selection and data source
The sample for this study consisted of A-share listed companies from Shanghai and Shenzhen from 2013 to 2020.Shanghai and Shenzhen are renowned as China's financial centers, with natural and superior geographical advantages that drive the sustainable development of China's economy (C.Wang & Meng, 2020).According to L. Chen et al. (2021), the Shanghai and Shenzhen stock exchanges are among the largest and most significant stock exchanges globally, with a combined market capitalization of over $7 trillion.They are also essential players in China's economy, with a significant number of listed companies, including many large SOEs.The Chinese government has been making significant efforts to improve CG standards and regulations in recent years.As a result, the regulatory environment for listed companies on the Shanghai and Shenzhen stock exchanges has become more stringent and demanding, making them an interesting case to study CG practices and their impact on the performance of companies (Y.Zhang & Wu, 2020).This study focused on data from 2013 to 2020 because the Company Law in China was revised in 2013 to complete and improve the company system, making it more operational and practical and providing a comprehensive and more specific

Principal-Agent Theory
Principal-agent theory is a branch of economics that examines the relationship between a principal (such as a company owner or shareholder) and an agent (such as a manager or employee) who is hired to act on the principal's behalf.The theory explores how incentives, monitoring, and other mechanisms can be used to align the interests of the principal and the agent and prevent conflicts of interest or moral hazard.Eisenhardt (1989) High-Order Theory High-order theory is a theoretical framework in psychology that seeks to explain how people form complex beliefs and attitudes based on their prior experiences and knowledge.According to high-order theory, people's beliefs are not simply the result of direct experience or conditioning but are influenced by a range of higher-order cognitive processes, such as inference, abstraction, and generalization.

Financing Constraint Theory
Financing constraint theory is a theory in economics that suggests that firms may face difficulties in obtaining external financing due to information asymmetries or other market imperfections.According to this theory, financing constraints can lead to suboptimal investment decisions and limit a firm's ability to grow and innovate.Clementi & Hopenhayn (2006) legal basis for company law and law enforcement activities.Therefore, the financial data from 2013 onwards is more reasonable and legitimate.During this period, China's regulatory environment for listed companies underwent significant changes, with new rules and guidelines being introduced to improve CG practices (Company Law, 2013).
Several criteria guided the sample selection choices, such as excluding special treatment companies and listed companies with incomplete data.Finally, 14504 annual observations were obtained, and extreme-value samples were processed via Winsorize.Winsorizing is a statistical technique used to limit the impact of outliers in a dataset by replacing extreme values with less extreme ones (Welch, 2021).It is a useful technique for analyzing data in research when there are outliers that may negatively impact the statistical analysis.Winsorizing can help preserve the sample size, distributional properties, and address non-normality in the data.Instead of deleting values other than the fractional number, the corresponding fractional bit value is utilized to replace it, ensuring maximum retention of data information (E.C. Tan & Yip, 2021).
The data source used in this study was the Personal Characteristic Document of Dong's Supervisors in the National Tai'an Database.Additionally, the BODs' data was supplemented by manually searching for information on Juchao Information.All the financial information for the listed companies is available in the CSMAR database.

Firm financing constraints
Various measures of firm financing constraints exist in the literature.The first measure uses coefficients in the model, but is influenced by factors like company size and industry characteristics.The second measure is a single index based on company characteristics such as size, bond rating, and enterprise reputation.However, it may not fully reflect the degree of firms' financing constraints (Yu et al., 2021).The third measure involves the relationship between enterprises and financial institutions or the acquisition and use of credit by business owners but is more subjective (Zhai et al., 2022).Some scholars have constructed relevant indexes to measure financing constraints, including the KZ, ZFC, and WW indexes (Yu et al., 2021).Although these indexes have strong synthesis, there may be measurement bias because the variables contain both qualitative and quantitative information about firm financing constraints (Y.Zhang, Xing, et al., 2020).
To address the endogenous problem, Hadlock and Pierce constructed the SA index, which consists of fully exogenous size and age.This effectively avoids measurement bias and produces relatively robust financing constraint results.This study, therefore, employed the SA index (refer to Table 2) to calculate the magnitude of the funding limitations faced by state-owned listed businesses based on prior research, integrating the benefits and drawbacks of the aforementioned measurement approaches.Hence, the greater the funding constraints experienced by the firms, the smaller the absolute value of the index generated (Yu et al., 2021;Zhai et al., 2022).

Participation of DIC in BG
The participation of the DIC in BG was measured based on three indicators (refer to Table 2): (1) DC1, whether the DIC participates in governance; if the director holds the position, the value is '1', otherwise it is '0' (2) DC2, the number of directors participating in the governance from the commission.
(3) DC3, the number of directors participating in the board, which is the ratio of the number of directors on the board to the total number of directors

Control variables
Comprehensive research at both macro and micro levels, which takes into account factors such as company norms, return on total assets, and enterprise growth, are important in understanding the factors affecting enterprise financing (C.Wang & Meng, 2020).Therefore, this study selected variables such as equity nature, monetary capital holding amount, asset-liability ratio, enterprise growth, profitability, net asset remuneration rate, and Tobin Q value, while controlling for industry and year effects (Sun et al., 2019).The specific operationalization of the variables is illustrated in Table 2.

Model design
To perform regression analysis to test the relationship between financing constraints and the DIC's role in BG, Model 1 was formulated as follows: Where SA is the degree of firms' financing constraints, DC is the DIC's participation in BG, and Control is the control variable.β is the correlation coefficient, ε is the random error term, i represents the company, and t represents the year.
As mentioned earlier, we measured three different types of DIC participation in BG to evaluate its impact on firms' financing constraints.The equations were constructed as shown in Models (2), (3), and (4) below:

Descriptive statistics
This study aimed to investigate the impact of the DIC's participation in the board on financing constraints.We divided the DIC's participation into three aspects and presented the descriptive statistics in Table 3.The mean SA index of the degree of firm financing constraint was found to be 3.5983, with a maximum value of 4.36, a minimum value of 2.03, and a standard deviation of 0.2949.The statistical results revealed that Chinese enterprises faced widespread financing constraint problems during the economic transformation period, with differences evident between enterprises.
Across the 14,504 samples, the mean values for DC1, DC2, and DC3 were 0.2142, 0.2834, and 0.0243, respectively, with standard deviation values of 0.4102, 0.61233, and 0.5899, indicating variation in the DIC's participation in the board among the sample.Combining the equity nature from Table 2 and the univariate T-value test findings, the mean of SOEs was 0.4585, indicating that 45.85% of the sample consisted of SOEs.The mean SA index was obtained for both SOEs and non-SOEs, and the difference was significant at the 1% level.The mean values of the SA index were 3.408 and 3.638 for SOEs and non-SOEs, respectively.Furthermore, we selected variables such as equity nature, monetary capital holding amount, asset-liability ratio, enterprise growth, profitability, net asset remuneration rate, and Tobin Q value, and controlled for industry and year (Sun et al., 2019).The listed companies in the sample showed significant individual differences in capital holdings and expectations of future profits.The debt level of the sample companies was moderate, and most of them exhibited strong growth, though overall profitability was not very high.

Correlation analysis
In this study, Pearson analysis was used to empirically test the impact of DIC's participation in BG on financing constraints.The results of the Pearson correlation coefficient test, as shown in Table 4, indicate that the participation of the DIC in BG is significantly negatively correlated with enterprise financing constraints at the 1% level, suggesting that deeper participation in the BODs can effectively reduce the financing constraints faced by enterprises.The correlation coefficient between each control variable (except Growth) and the explained variable was significant at the 1% level, and the correlation coefficient between the pairwise of each variable was less than 0.9.Additionally, the variance expansion factor VII was 1.15, which is much less than 10, indicating that there was no serious multicollinearity problem in the model.

The effect of DIC participation in BG on firms' financing constraints
Table 4 shows univariate regression results and Table 5 presents the multivariate regression results on the effect of the DIC's involvement in BG on the company's financing constraints.Model 0 demonstrates that the commission's participation in BG and firms' financing constraints were significantly negatively correlated at the 1% level, with a return coefficient of −0.96.Model 1, which is a multivariate regression result of the number of directors concurrently serving as the DIC and financing constraints, showed a significant negative correlation at the 1% level, with a return coefficient of −0.72.Model 2, which is a multiple regression analysis of the association between the number of DIC officers and the financing constraints of the organization, discovered the same trend with a return coefficient of −0.70 with significance at the 1% level.Lastly, Model 3, which is a multivariate regression result of the ratio between the number of directors on the board and the total number of directors and the financing constraints of the enterprise, also displayed a significant negative correlation at the 1% level, with a regression coefficient of −0.70.These findings confirm that the DIC participation in the board plays a role in alleviating the financing constraints faced by enterprises, thus supporting Hypothesis 1.

The participation of DIC in the BG of SOEs and non-SOEs
We tested Hypothesis 2 by categorizing the sampled companies into two groups: SOEs (SOE = 1) and non-SOEs (SOE = 0) and introducing the interaction terms between BG (DC1, DC2, DC3) and equity properties (SOE).The final results are shown in Table 5.From the interaction term DC1*SOE of the entire sample group, Table 5 shows a coefficient of −0.105, significant at the 1% level.The interaction term DC2*SOE exhibited a coefficient of −0.053 while the interaction term DC3*SOE had a coefficient of −0.014; both were significant at the 1% level.Based on the results of Models 2, 3, and 4, the governance role of the BODs has a significant negative effect on the financial constraints of the company, especially in non-SOEs.It means that SOEs are less impacted by the negative regulatory effect of DIC BG participation on their financing constraints.The smaller the SOE value, the more the negative mitigation effect of the DIC's participation in BG and the weaker the financing constraints.
According to the classification of equity attributes in Table 6, participation in the BODs managed by the principal has a more significant negative effect on the financing constraints of non-SOEs than SOEs.Accordingly, Hypothesis 2 was supported.

Robustness test
To ensure the reliability and validity of the study findings and to increase confidence in their generalizability, a robustness test was performed (Zheng et al., 2022).Additionally, the possibility of two-way causality leading to endogeneity problems or omitted variables could not be ruled out (Miyazaki & Mizuno, 2021).Therefore, this study used the fixed effects model and lagged variables as instrumental variables to address potential endogeneity issues.Table 5 showed that the control variables Growth, Probit, and ROE were insignificant, so they were removed from the model.The regression results in Table 7 show that the DIC's participation in BG has a significant negative effect on the financing constraints of enterprises, particularly in private enterprises.This finding is consistent with the main regression results, indicating that the conclusions are robust.

Discussion of findings
Chinese enterprises face financing constraints (Xu et al., 2019), which can impede their growth and affect their performance (Campello et al., 2010).Accurately measuring the extent of financing constraints and finding ways to alleviate them is a critical issue in the academic community.This study focused on the impact of DIC participation in BG on firms' financing constraints.It postulates that the participation of the DIC in BG has a negative impact on the financial limitations of firms.Yuan et al. (2020) found that the establishment of party organizations in private enterprises can have a positive effect on performance by alleviating financing constraints.Gong (2021) also found that the participation of party organizations in governance can ease the external financing constraints for private enterprises.Before that, Ginsberg et al. (2011) suggested that BG directors and the DIC must adhere to specific rules and make precise decisions.
Financing constraints can hinder the implementation of circular economy initiatives (Sassanelli et al., 2020) and effective stakeholder engagement (D'Adamo, 2022;Macedo-Soares et al., 2017).However, companies can overcome these challenges by adopting innovative financing models, such as green-circular premium (Appolloni et al., 2022), circular financing, or green bonds, and working with stakeholders to identify opportunities to optimize resource utilization and reduce waste (Di Vaio et al., 2023).Notably, the participation of the DIC in CG can significantly impact a company's ability to promote circular economy initiatives and engage with stakeholders.By involving the DC in the governance of the BODs, a company can enhance transparency, accountability, and ethical standards, leading to increased stakeholder trust, support for circular economy initiatives, and engagement (Di Vaio et al., 2023;Taddei et al., 2022).Chinese SOEs, in particular, can significantly contribute to advancing sustainable and circular development by surmounting financial barriers and harnessing the potential of the DIC, not only benefiting their operations but also their supply chains and the broader economy (L.Chen et al., 2021).Furthermore, the DIC play a vital role in identifying and addressing potential financial misconduct or corruption that could impede the implementation of circular economy initiatives.By detecting and preventing such activities, the DIC can ensure that the company's financial resources are efficiently and effectively utilized.Overall, the participation of the DIC in CG can facilitate the adoption of circular economy initiatives and promote stakeholder engagement.By working with stakeholders to identify opportunities for resource optimization and waste minimization, companies can contribute to sustainable and circular development.
Based on our findings, it can be concluded that the impact of the DIC's participation on financing constraints varies significantly between SOEs and non-SOEs in China.The financing constraint theory suggests that limited access to external financing can hinder a firm's growth and economic performance (Kim, 2020).SOEs are often viewed as having an advantage due to their access to government funding and preferential treatment from financial institutions, which can alleviate some of the financing constraints faced by private enterprises, particularly in emerging markets or industries (Gong, 2021).As a result, compared to SOEs, the participation of DIC in BG has a greater negative adjustment effect on private firms' financing constraints.
Moreover, compared to non-SOEs, SOEs benefit from their political attribute being influenced by the Party, established norms, stability, and reputation in the financing market (Y.Zhang, Xing, et al., 2020).This implicit guarantee by the government has resulted in banks and financial institutions implementing differential credit policies for private enterprises, further increasing financing constraints for them (Gong, 2021).According to Xie et al. (2022), banks may adopt different credit policies for private enterprises based on risk considerations, resulting in high financing costs and long financing cycles.
This study further adds to the higher-order theory by recognizing that the participation of the DIC in SOEs, as individuals' beliefs and preferences, can influence their decision-making and reduce financing risk.In contrast, Cancela et al. (2020) found that the principal-agent theory holds true for non-SOEs, where agents may have their own objectives and values that may not align with those of the principal.As such, the participation of the DIC in the governance of the BODs has a more significant negative impact on the financing constraints of private enterprises compared to that of SOEs.
In conclusion, this study finds that the participation of the DIC in the governance of a firm's BODs has a negative impact on the firm's financing constraints, with a more significant effect on private enterprises compared to SOEs.This research contributes to a better understanding of the impact of the DIC on BG and can assist policymakers in developing policies for SOEs and non-SOEs.Additionally, studying the DIC's participation in the governance of the BODs can help enterprises better understand and enhance their CG practices for supervising their BODs.

Academic implications
The present study contributes to the existing literature in three ways.First, it examines the impact of DIC participation as a crucial CG variable on the financing constraints of China's listed companies.Second, it confirms the importance of CG by demonstrating that DIC participation significantly influences financing constraints, which is an under-researched area in the CG literature (Y.Zhang, Xu, et al., 2020).Third, this research extends the financing constraints theory to illustrate that SOEs in China have an advantage due to their political attributes, which are influenced by the Party, established norms, and stability and reputation in the financing market (Gong, 2021).

Managerial implications
Our findings also offer practical implications for managers.Firms are encouraged to recognize that DIC participation is a unique characteristic of the Chinese governance system and can serve as an internal control mechanism to monitor and regulate the behavior of Party and government officials.By incorporating the principle of DIC participation into their CG practices, companies may be able to improve transparency and accountability, promote ethical behavior, and reduce the risk of corruption.The presence of DIC participation may reduce perceived risk and financing constraints for companies.Companies operating in regions with DIC participation may be perceived as less risky by investors, leading to lower financing constraints (Steinle et al., 2014).This, in turn, may lower the cost of capital for companies, making it easier for them to access financing and invest in growth opportunities.

Policy implications
The participation of the DIC in financing constraints research can bring several benefits.First, it can help to identify corrupt practices that contribute to financial mismanagement and constrain the growth and development of organizations.The DIC can provide valuable insights into these practices and help to develop strategies to address them.Second, the DIC can play a crucial role in promoting transparency, accountability, and good governance practices in organizations.By investigating cases of corruption and working with policymakers and other stakeholders, the commission can help to develop policies and programs aimed at promoting these principles.Third, the DIC can contribute to sustainable economic growth by reducing corruption, improving organizational performance, and enhancing the reputation of organizations.By promoting good governance practices and reducing financial mismanagement, organizations can attract more investment, create more jobs, and contribute to the overall economic development of their respective regions.

Limitations of the study
In terms of limitations, though this study investigated the impact of DIC participation in BG on firms' financing constraints in China, it did not consider the influence of macrolevel fiscal and tax incentive policies on this relationship.To address the issue of financing constraints in Chinese firms' financial management, future research could explore the problem of financing restrictions from the perspective of taxation and financial subsidies.Additionally, this study only examined the direct effects of DIC participation on financing constraints, without considering potential moderators such as media attention and management commitment.Therefore, it is recommended that future research in this area should take these factors into account and strive to uncover comprehensive and applicable findings across various contexts.

Conclusion
The current study investigated the relationship between the involvement of the DIC in the governance of a firm's BODs and the firm's financing constraints within the context of the circular economy.The study was conducted using data from A-share listed companies in Shenzhen and Shanghai from 2013 to 2020.The findings highlight the critical role of the DIC in developing strategic guidelines for businesses and government management, which can help to overcome financing constraints and promote sustainable and circular development.This study presents an interesting extension of the financing constraints theory to explain how political attributes can confer advantages to SOEs in China.Specifically, the DIC's participation on the board can contribute to the political attributes of SOEs, which can enhance their advantage in the financing market.In this study, the DIC's participation on the board of SOEs can be seen as a manifestation of the Communist Party's influence over these entities.By having a representative of the Party on the board, SOEs can demonstrate their alignment with the Party's goals and values, which can enhance their reputation and stability in the financing market.
Companies can address financing constraints in the circular economy by adopting innovative financing models and collaborating with stakeholders to optimize resources and minimize waste.Chinese SOEs can play a significant role in promoting sustainable and circular development by leveraging the participation of the DIC, benefiting not only their operations but also their supply chains and the wider economy.The DIC ensures SOEs comply with sustainable development regulations and policies, helping them adhere to environmental and social standards.Sinopec, one of China's largest SOEs in oil, gas, and chemical production, has implemented an environmental management system with DIC's help to address its significant environmental impact.This highlights the potential benefits of government oversight in promoting sustainable development in SOEs (Climate Accountability Institute, 2019).
Financing constraints can impede innovation and investment in key areas, and corruption is one factor that contributes to financial mismanagement.The DIC can help to reduce corruption and improve organizational performance by investigating cases of corruption and promoting transparency, accountability, and good governance practices in organizations.Additionally, the commission's involvement in financing constraint research can facilitate collaboration between stakeholders across the value chain and promote more sustainable practices in Industry 4.0, leading to increased efficiency and reduced waste.Overall, the DIC's involvement in finance research can have a significant impact on promoting sustainable practices and supporting the transition to the circular economy in the context of Industry 4.0.
This study highlights the significant differences between the historical implementation of communism in countries like China and the former Soviet Union and current economic and research beliefs and practices.A major difference is the state's role in controlling and directing economic activity, with communism involving state control of production and distribution, while capitalism is driven by private enterprise and market forces.In this study, the use of a communist economy as historically implemented in countries such as China and the former Soviet Union, differs significantly from current economic and research beliefs and practices in many ways.One major difference is the role of the state in controlling and directing economic activity.Under a communist system, the state controls the means of production and distribution, while in a capitalist system, the economy is largely driven by private enterprise and market forces.DIC oversight can enhance SOEs' reputation and stability in the financing market by ensuring compliance with government policies and regulations.However, it may also increase bureaucratic oversight and potential political interference, hindering SOEs' efficiency and effectiveness.The ongoing influence of the state through SOEs underscores the importance of understanding the unique dynamics of the Chinese economic system and the potential impact of government oversight on economic activity.
Discussions about economic systems are complex and nuanced, and it is crucial to approach them with an open mind.While it is true that the implementation of communism in countries like China and the former Soviet Union involved significant state control over economic activity, it is important to note that not all communist theories and practices are the same.Furthermore, it is worth noting that the current economic and research beliefs and practices have evolved significantly since the implementation of communism in these countries.Ultimately, the goal of any economic system should be to promote sustainable growth and development while ensuring social equity and welfare.By fostering a critical and open dialogue about different economic systems, we can better understand their strengths and weaknesses, and work towards building more equitable and sustainable societies.
Future research could explore how DIC participation affects perceptions of SOE reliability and stability among stakeholders, such as investors, employees, and customers.This could also include analyzing the impact on financing costs, profitability, innovation, and competitiveness, as well as the sustainability of the SOE model in China.Empirical methods and stakeholder experiences can provide valuable insights into the role of the DIC in promoting sustainable and circular development for Chinese SOEs.Further research is needed to better understand the impact of DIC participation on the financing constraints of Chinese SOEs.
name is listed in the World Scientist and University Rankings 2022.She ranked first in the Business Administration category of the University of Naples Parthenope and at 30° in Italy (Available at: https://www.adscientificindex.com/scientist/assunta-di-vaio/1753164).

Table 1 .
Conceptualization of the study.Disciplinary Inspection Commission is a supervisory body that operates within the Chinese Communist Party (CCP) and is responsible for investigating and punishing corruption and other forms of malfeasance within the Party and state institutions.The Committee was established in 1927 and has since played a significant role in maintaining political discipline and integrity in the CCP.firms in China are companies that are owned or controlled by the government or other state entities.These firms are often involved in strategic industries, such as energy, telecommunications, and transportation, and are subject to government oversight and regulation.While state-owned firms play an important role in the Chinese economy, they have also been criticized for being inefficient and burdened by bureaucratic procedures.

Table 2 .
Operationalisation of research variable.
Tobin Q (Price per share * tradable shares + net assets per share * non-tradable shares + total liabilities)/total assets

Table 3 .
Descriptive statistics for all variables.

Table 5 .
Participation of Commission Disciplinary Inspection and financing constraints.

Table 6 .
Regulation of equity properties.

Table 7 .
Robustness test after excluding the insignificant control variables.