CEO Turnover in China: The Role of Market-Based and Accounting Performance Measures

Abstract

This study investigates the relation between CEO turnover and firm performance in China’s publicly traded firms. We provide evidence on the use of accounting and market-based performance measures in CEO turnover decisions. We also investigate moderating roles of noise in performance measures, firm growth opportunities, State Owned Enterprises, and corporate governance reform on the weights attached to these performance measures. We find that Chinese listed firms rely more on accounting performance than on stock market performance when determining CEO turnover. Firms with noisier performance measures and firms with larger growth opportunities rely less on both accounting and stock market performance in CEO replacement decision. State-controlled firms are more likely to use accounting performance to determine CEO turnover. Finally, we find that the weight attached to the accounting performance measure is significantly reduced and the weight attached to the stock market performance is significantly increased after the governance reform. We also observe that the reform has different impacts on state owned firms and private firms in terms of sensitivity of CEO turnover to firm performance.

Keywords: China, Corporate Governance, CEO Turnover

JEL Classification: G34, G15, G38