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Does the balance of power among block shareholders have impact on top management turnover?: An empirical study of listed firms in China

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  • Jun Xie
  • Xiaotao Zeng
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    Abstract

    Purpose–The purpose of this paper is to examine whether the shareholding of the largest shareholder and other large shareholders could exert a good stimulating effect within a firm's corporate governance structure and what impact the balance of power among large shareholders could have on top management turnover. Design/methodology/approach–This paper has investigated 787 firms publicly listed in the Shanghai Stock Exchange and checked the relation between power balance of firms' block shareholders and their top management turnover. Findings–The paper's empirical results show that there is a U-shaped relationship between the proportions of shareholding of a firm's largest shareholder and its top management turnover, that is, the controlling shareholder could impose either negative or positive effect for different types of equity ownership. We also find that the proportion of shares held by other block shareholders is significantly and positively related to the turnover of management and the monitoring effect of other large shareholders is strong. Furthermore, duality of chairman and CEO shows a significant negative effect on firms's top management turnover. Originality/value–The paper usefully shows that under the institutional background of relatively weak legal protection for medium and small investors in China, centralized shareholding by large shareholders in listed firms, or the so-called mechanism of power balance among block shareholders, has the ability to effectively supervise and restrain the corporate governance of a firm, replace ineffective managers and thus improve its whole management performance

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    File URL: http://www.emeraldinsight.com/journals.htm?issn=2044-1398&volume=1&issue=1&articleid=1896553&show=abstract
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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal China Finance Review International.

    Volume (Year): 1 (2010)
    Issue (Month): 1 (December)
    Pages: 98-113

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    Handle: RePEc:eme:cfripp:v:1:y:2010:i:1:p:98-113

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    Web page: http://www.emeraldinsight.com

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    Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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    Related research

    Keywords: Chairmen; Chief executives; China; Corporate governance; Corporate ownership; Shareholders;

    References

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    1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Schleifer, Andrei & Vishny, Robert, 2001. "Investor Protection and Corporate Governance," Working Paper Series rwp01-017, Harvard University, John F. Kennedy School of Government.
    2. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04.
    3. Warner, Jerold B. & Watts, Ross L. & Wruck, Karen H., 1988. "Stock prices and top management changes," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 461-492, January.
    4. Shleifer, Andrei & Vishny, Robert W., 1986. "Large Shareholders and Corporate Control," Scholarly Articles 3606237, Harvard University Department of Economics.
    5. Erik Lehmann & Juergen Weigand, 2000. "Does the Governed Corporation Perform Better? Governance Structures and Corporate Performance in Germany," CoFE Discussion Paper 00-05, Center of Finance and Econometrics, University of Konstanz.
    6. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 110.
    7. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 351.
    8. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
    9. María Gutiérrez & Josep A. Tribo, 2004. "Private benefits extraction in closely-held corporations: The case for multiple large shareholders," Business Economics Working Papers wb044315, Universidad Carlos III, Departamento de Economía de la Empresa.
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