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

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Author Info

  • Kato, Takao

    ()
    (Colgate University)

  • Long, Cheryl

    ()
    (Colgate University)

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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Bibliographic 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
Date of revision:
Publication status: published in: Journal of Comparative Economics, 2006, 34 (4), 796 - 817
Handle: RePEc:iza:izadps:dp1914

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

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References

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Cited by:
  1. Jin-hui Luo & Di-fang Wan & Di Cai, 2012. "The private benefits of control in Chinese listed firms: Do cash flow rights always reduce controlling shareholders’ tunneling?," Asia Pacific Journal of Management, Springer, Springer, vol. 29(2), pages 499-518, June.
  2. Sergey Solntsev, 2013. "Senior management labor market: from economic growth to crisis. The case of Russia," HSE Working papers, National Research University Higher School of Economics WP BRP 10/MAN/2013, National Research University Higher School of Economics.
  3. Xia, Jun & Li, Shaomin & Long, Cheryl, 2009. "The Transformation of Collectively Owned Enterprises and its Outcomes in China, 2001-05," World Development, Elsevier, Elsevier, vol. 37(10), pages 1651-1662, October.
  4. Pessarossi, Pierre & Weill, Laurent, 2012. "Does CEO turnover matter in China? Evidence from the stock market," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 21/2012, Bank of Finland, Institute for Economies in Transition.
  5. Lili Pi & Julian Lowe, 2011. "Can a powerful CEO avoid involuntary replacement?—An empirical study from China," Asia Pacific Journal of Management, Springer, Springer, vol. 28(4), pages 775-805, December.
  6. Yongheng Deng & Randall Morck & Jing Wu & Bernard Yeung, 2011. "Monetary and Fiscal Stimuli, Ownership Structure, and China's Housing Market," NBER Working Papers 16871, National Bureau of Economic Research, Inc.
  7. Chang, Eric C. & Wong, Sonia M.L., 2009. "Governance with multiple objectives: Evidence from top executive turnover in China," Journal of Corporate Finance, Elsevier, Elsevier, vol. 15(2), pages 230-244, April.
  8. Johansson, Anders C. & Feng, Xunan, 2013. "CEO Incentives in Chinese State-Controlled Firms," Working Paper Series 2013-27, Stockholm China Economic Research Institute, Stockholm School of Economics.
  9. Liao, Guanmin & Chen, Xin & Jing, Xin & Sun, Jianfei, 2009. "Policy burdens, firm performance, and management turnover," China Economic Review, Elsevier, Elsevier, vol. 20(1), pages 15-28, March.
  10. Ma, Liangbo & Ma, Shiguang & Tian, Gary, 2013. "Political connections, founder-managers, and their impact on tunneling in China's listed firms," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 24(C), pages 312-339.
  11. Lau, Chung-Ming & Fan, Dennis K.K. & Young, Michael N. & Wu, Shukun, 2007. "Corporate governance effectiveness during institutional transition," International Business Review, Elsevier, Elsevier, vol. 16(4), pages 425-448, August.
  12. Conyon, Martin J. & He, Lerong, 2011. "Executive compensation and corporate governance in China," Journal of Corporate Finance, Elsevier, Elsevier, vol. 17(4), pages 1158-1175, September.
  13. Chi, Wei & Wang, Yijiang, 2009. "Ownership, performance and executive turnover in China," Journal of Asian Economics, Elsevier, Elsevier, vol. 20(4), pages 465-478, September.
  14. Wang, Jiwei, 2010. "A comparison of shareholder identity and governance mechanisms in the monitoring of CEOs of listed companies in China," China Economic Review, Elsevier, Elsevier, vol. 21(1), pages 24-37, March.
  15. Lam, Kevin C.K. & McGuinness, Paul B. & Vieito, João Paulo, 2013. "CEO gender, executive compensation and firm performance in Chinese‐listed enterprises," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 21(1), pages 1136-1159.
  16. Michael Firth & Sonia Wong & Yong Yang, 2014. "The double-edged sword of CEO/chairperson duality in corporatized state-owned firms: evidence from top management turnover in China," Journal of Management and Governance, Springer, Springer, vol. 18(1), pages 207-244, February.
  17. Jiang, Fuxiu & Huang, Jicheng & Kim, Kenneth A., 2013. "Appointments of outsiders as CEOs, state-owned enterprises, and firm performance: Evidence from China," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 23(C), pages 49-64.
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