CEO Turnover, Firm Performance, and Corporate Governance in Chinese Listed Firms

34 Pages Posted: 26 Mar 2005

See all articles by Takao Kato

Takao Kato

Colgate University - Economics Department; IZA Institute of Labor Economics

Cheryl Long

Colgate University - Economics Department

Date Written: March 15, 2005

Abstract

Using comprehensive financial and accounting data on China's listed firms from 1998 to 2002, augmented by unique data on CEO turnover, ownership structure and board characteristics, we estimate Logit models of CEO turnover and find that: (i) even if the firm is listed in Stock Exchanges, there is no significant and negative link between CEO turnover and firm performance unless the listing is accompanied by an ownership change from state to private; (ii) the presence of a large controlling shareholder makes CEO turnover more sensitive to firm performance; (iii) the appointment of independent directors enhances turnover-performance sensitivities; (iv) CEO turnover-performance sensitivities are weaker for listed firms with CEOs who also hold positions in the controlling shareholders; and (v) firm performance will improve significantly after the replacement of the CEO and the improvement will be greater for privately controlled firms than for state controlled firms. These findings have important implications for China's stock market development and SOE reform as well as more generally the law and finance approach to corporate governance. Consistent with the law and finance approach to corporate governance, the wholesale change of ownership and control from the state to private individuals and firms is found to be the most consistent and significant contributor to stronger CEO turnover-performance link and hence the higher quality of corporate governance. The positive effects of higher independence of board members on turnover-performance link are also consistent with the weak investor protection theory.

Keywords: executive turnover, firm performance, corporate governance, ownership structure, China, and transition economies

JEL Classification: P34, G30, M52, J33, O16, O53, G30, M12, G15

Suggested Citation

Kato, Takao and Long, Cheryl Xiaoning, CEO Turnover, Firm Performance, and Corporate Governance in Chinese Listed Firms (March 15, 2005). Available at SSRN: https://ssrn.com/abstract=687350 or http://dx.doi.org/10.2139/ssrn.687350

Takao Kato (Contact Author)

Colgate University - Economics Department ( email )

13 Oak Drive
Hamilton, NY 13346
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315-228-7562 (Phone)
315-228-7033 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Cheryl Xiaoning Long

Colgate University - Economics Department ( email )

13 Oak Drive
Hamilton, NY 13346
United States

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