Public Governance, Political Connectedness, and CEO Turnover: Evidence from Chinese State-Owned Enterprises
University of Melbourne
August 18, 2011
24th Australasian Finance and Banking Conference 2011 Paper
Using a sample of partially privatized state-owned enterprises (SOEs) listed in China’s A-share stock market, this study investigates whether the regional institutions and CEO’s political connectedness will affect the listed firms’ hiring and firing decisions about CEOs, and what are the channels of these effects. I find that politically connected CEOs are less likely to be nominated to firms in industries with more specific knowledge, with more competition, cross-listed in overseas stock exchange, and in regions with stronger institutions. As a consequence, political connectedness of CEOs in SOEs reduces the sensitivity of their turnover to firm performance. However, the reduction on turnover performance sensitivity is mitigated by stronger institutions. The additional analysis finds evidence partially explaining why the politically connected CEOs are less likely to be dismissed because of their poor performance, that is, SOEs with politically connected CEOs can get more subsidies from the governments when their performance is poor, and tend to hire more employees when the regions in which they locate suffer from severe unemployment problem.
Number of Pages in PDF File: 56
Keywords: Public Governance, Political Connectedness, CEO Turnover, Government Intervention
JEL Classification: G32, G38, J63, M41, M51
Date posted: August 19, 2011
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