The Effect of the Chairman's Alumni Ties on Agency Cost of State-Owned Enterprise: Evidence from China

Abstract

Before the deepening reform in state-owned enterprises (SOE for short), the formal institution of the manager market was not perfect in SOEs in China. Without formal institutions, the chairman’s social ties act as an alternative. Research findings show that the chairman’s alumni ties among businesses can reduce the agency costs of SOEs, and this effect mainly existed before the deepening reform of SOEs in 2016. Mechanism analysis shows that the influence of the chairman negatively impacts the career prospects of abnormally resigned senior executives. Further analysis shows that the effect of the chairman’s alumni ties on the agency cost of SOE is more significant in large enterprises, and SOEs receive more attention from the capital market or media.

Keywords: State-Owned Enterprises, Agency Cost, Alumni Ties, Informal Institutions