Star CEOs or Political Connections? Evidence from China's Publicly Traded Firms

32 Pages Posted: 14 May 2015

See all articles by Martin J. Conyon

Martin J. Conyon

Bentley University; Wharton School, Center for Human Resources

Lerong He

State University of New York (SUNY) College at Brockport

Xin Zhou

New York University (NYU) - New York University (NYU), Shanghai; Donbei University of Finance and Economics

Date Written: April/May 2015

Abstract

This paper studies China's “star CEOs” defined as members of the National People's Congress (NPC) or the National Committee of the Chinese People's Political Consultative Conference (CPPCC) and “politically connected” CEOs who have previous government or military experience. We evaluate the effect of “star CEOs” and “politically connected” CEOs on firm performance and CEO compensation. We find that announcement date returns, CEO compensation and incentives are all higher in firms that appoint “star CEOs”. However, the mechanism explaining these various premiums is largely political connectedness of these star CEOs. Our study finds only modest evidence that star‐CEO status directly determines firm performance. Our analysis strongly suggests that compensation and performance premiums are mostly driven by CEO political connections, as opposed to CEO talent/star effects.

Keywords: star CEO, political connections, executive compensation, China

Suggested Citation

Conyon, Martin J. and He, Lerong and Zhou, Xin, Star CEOs or Political Connections? Evidence from China's Publicly Traded Firms (April/May 2015). Journal of Business Finance & Accounting, Vol. 42, Issue 3-4, pp. 412-443, 2015, Available at SSRN: https://ssrn.com/abstract=2605246 or http://dx.doi.org/10.1111/jbfa.12110

Martin J. Conyon (Contact Author)

Bentley University ( email )

175 Forest Street
Waltham, MA 02145
United States

Wharton School, Center for Human Resources ( email )

3600 Locust Walk
Philadelphia, PA 19104-6365
United States

Lerong He

State University of New York (SUNY) College at Brockport ( email )

Brockport, NY 14420
United States

Xin Zhou

New York University (NYU) - New York University (NYU), Shanghai

1555 Century Ave
Shanghai, Shanghai 200122
China

Donbei University of Finance and Economics

217 Jianshan St,
Shahekou
Dalian, Liaoning
China

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