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CEO Turnover, Firm Performance and Enterprise Reform in China: Evidence from New Micro Data

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Author Info
Takao Kato () (Colgate University, Columbia University and IZA Bonn)
Cheryl Long () (Colgate University, Stanford University and University of Electronic Science and Technology of China)

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Abstract

Using comprehensive financial and accounting data on China’s listed firms from 1998 to 2002, augmented by unique data on CEO turnover, ownership structure and board characteristics, we estimate Logit models of CEO turnover. We find consistently for all performance measures including both stock return and various accounting measures that: (i) overall, CEO turnover is significantly and inversely related to firm performance though the magnitude of the relationship is modest; (ii) CEO turnover-performance link is stronger when the percentage of company shares owned by the largest shareholder is larger. Furthermore, insofar as stock performance is concerned, (iii) turnover-performance link is found to be weaker for listed firms still controlled by the state; (iv) the appointment of independent directors enhances turnover-performance link; (v) the listing suspension mechanism, i.e., the ST designation, adopted by China’s securities regulatory agency appears to be effective in improving turnover-performance tie; and (vi) listed firms with CEOs holding additional positions in the controlling shareholders have weaker turnover-performance link. Consistent with the "law and finance" approach to corporate governance and the literature on economic transition, our findings suggest that any fundamental improvement in China’s corporate governance will require a broad program that encompasses not only privatization but also laws and their effective implementation to provide better protection for investors.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1914.

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Length: 46 pages
Date of creation: Jan 2006
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Handle: RePEc:iza:izadps:dp1914

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Related research
Keywords: executive turnover firm performance enterprise reform corporate governance ownership structure China and transition economies

Find related papers by JEL classification:
M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
G30 - Financial Economics - - Corporate Finance and Governance - - - General
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
G30 - Financial Economics - - Corporate Finance and Governance - - - General
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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