: “The CPC’s Party Building into Articles of Association” is an innovative institutional arrangement of the embedding of Party organizations into corporate governance in the new era. “The CPC’s Party Building into Articles of Association” promotes the Party organizations of companies embedding into the corporate governance structure and regulates companies’ organizational structure and code of conduct on the institutional level by specifying important matters such as responsibilities and authorities, institutional setting, operating mechanism and basic guarantees of Party organizations in Articles of Association known as the “corporate constitution”. “The CPC’s Party Building into Articles of Association” organically combines the strengthening of the CPC’s leadership and the improvement of corporate governance, defines the legal status of Party organizations in the corporate governance structure of companies, and gives full play to the political leadership role and governance role of Party organizations, having a significant impact on the operation and decisions of companies.

This paper hand-collects the “Articles of Association” data of A-share listed companies in China from 2007 to 2019. By constructing the database of “the CPC’s Party Building into Articles of Association”, this paper examines the potential impact of the institutional arrangements of grassroots Party organizations on corporate financial fraud. The results show that: (1) “The CPC’s Party Building into Articles of Association” can inhibit corporate financial fraud, and such fraud governance is more prominent when corporate state-owned property rights are higher. (2) Channel research shows that the inhibitory effect of “the CPC’s Party Building into Articles of Association” on corporate financial fraud is achieved by strengthening the effectiveness of corporate internal control. (3) Heterogeneity analysis shows that the inhibitory effect of “the CPC’s Party Building into Articles of Association” on corporate financial fraud is more prominent when “two-way entry” is stronger and external supervising mechanisms (such as auditors, analyst focus and regulatory distance) are weaker.

From the perspective of corporate financial fraud governance, this paper proves that “the CPC’s Party Building into Articles of Association” can improve corporate supervising mechanisms and enhance the efficiency of corporate governance. It preliminarily reveals the governance effect of “the CPC’s Party Building into Articles of Association” on companies and its mechanism. The conclusions lay a new theoretical foundation for the rationality and necessity of the institutional arrangement of “the CPC’s Party Building into Articles of Association” in state-owned companies, and provide incremental policy inspirations for the practice of improving the embedding of Party organizations into corporate governance. At the same time, combined with China’s localization situation, this paper also expands the relevant research on the influencing factors of corporate financial fraud and provides new inspiration for effectively curbing corporate financial fraud and promoting the healthy development of China’s securities market.