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CEO turnover, political connections, and firm performance: Evidence from China

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  • Liu, Xiaoyan
  • Zhao, Rui
  • Guo, Mengmeng

Abstract

In our analysis of 5738 CEO turnover events among A-share listed companies in China over the period of 1993 to 2019, we find that CEO turnovers on average hurt companies' market performance with significant negative abnormal returns in the event window. We then group the companies into four types based on whether the outgoing and successor CEOs have political connections, and then calculate the abnormal returns in the event windows of CEO turnovers once announced. We find that companies generally enjoy positive abnormal returns if they replace politically non-connected CEOs with connected ones. Such a positive effect is more evident among non-state-owned enterprises (non-SOEs), companies with worse performance, and companies with higher financial constraints. However, abnormal returns derived from hiring politically connected successor CEOs turn to negative following China's massive anti-corruption campaign in 2012. Our findings provide direct estimations of the economic value of CEOs' political connections for A-share listed companies in China and reveal boundary conditions that moderate the influence of hiring politically connected CEOs.

Suggested Citation

  • Liu, Xiaoyan & Zhao, Rui & Guo, Mengmeng, 2023. "CEO turnover, political connections, and firm performance: Evidence from China," Emerging Markets Review, Elsevier, vol. 55(C).
    • Handle: RePEc:eee:ememar:v:55:y:2023:i:c:s1566014122000826
    DOI: 10.1016/j.ememar.2022.100965
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    More about this item

    Keywords

    CEO turnover; Political connections; Anti-corruption campaign; China;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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