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Politically Connected CEOs, Corporate Governance, and the Post‐IPO Performance of China's Partially Privatized Firms

13 Pages Posted: 22 Oct 2014  

Joseph P. H. Fan

The Chinese University of Hong Kong (CUHK)

T.J. Wong

The Chinese University of Hong Kong (CUHK) - School of Accountancy

Tianyu Zhang

The Chinese University of Hong Kong

Date Written: Summer 2014

Abstract

The authors' study provides suggestive evidence of the negative effects of politically connected CEOs on the corporate performance and governance of publicly listed companies in China. Newly listed Chinese companies with politically connected CEOs are more likely to have boards that are populated by current or former government bureaucrats, and that generally exhibit low degrees of professionalism, as indicated by fewer directors with relevant professional backgrounds. At the same time, the operating and stock‐return performance of such firms has failed to match that of their politically unconnected counterparts. Thus, the authors' study provides more support for the argument that bureaucrats and politicians extract resources from listed SOEs under their control to fulfill objectives that are not consistent with firm value maximization. Expressed in more general terms, the main finding of the study is that the constraints on property rights faced by Chinese SOEs - namely the non‐transferability of state ownership and the right of the government to appoint CEOs - appear to have significantly negative effects on firm performance as well as board professionalism and governance. Removing these constraints will likely have to be a critical part of any future reforms that aim to improve the productivity of listed Chinese companies.

Suggested Citation

Fan, Joseph P. H. and Wong, T.J. and Zhang, Tianyu, Politically Connected CEOs, Corporate Governance, and the Post‐IPO Performance of China's Partially Privatized Firms (Summer 2014). Journal of Applied Corporate Finance, Vol. 26, Issue 3, pp. 85-95, 2014. Available at SSRN: https://ssrn.com/abstract=2513046 or http://dx.doi.org/10.1111/jacf.12084

Joseph P. H. Fan (Contact Author)

The Chinese University of Hong Kong (CUHK)

Shatin, N.T.
Hong Kong
Hong Kong

Tak Jun Wong

The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )

Shatin, N.T.
Hong Kong
852.2609.7750 (Phone)

Tianyu Zhang

The Chinese University of Hong Kong ( email )

Shatin, N.T.
Hong Kong

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