Appointment of Politically Connected Top Executives and Subsequent Firm Performance and Corporate Governance: Evidence from China’s Listed SOEs
- 4 January 2012
- preprint
- Published by Elsevier BV in SSRN Electronic Journal
Abstract
This paper investigates the decision to appoint politically connected top executives to Chinese listed state-owned enterprises (SOEs) when they face distressful conditions and whether such appointments enhance or reduce firm performance and corporate governance in subsequent years. China is the world’s largest emerging economy, and Chinese SOEs are under intensive state control and are obliged to draw on a less developed managerial labor market. Using data on the top-management turnover of listed SOEs from 2001 to 2005, we find that state-owned companies are more likely to replace top executives and appoint a politically connected executive when they encounter a distress such as poor ROA, an earnings loss, a high financial risk, or regulations violation. We also find that newly appointed politically connected top executives subsequently improve firm performance and governance structures and reduce the frequency of illegal action by firms. However, there is no evidence that newly appointed politically connected top executives benefit firms through affording them preferential access to resources or government assistance. The findings suggest that politically connected executives may be selected for the alignment of shareholders’ interests and for their special managerial talent in emerging markets dominated by government ownership, and may display additional managerial productivity in such an environment.Keywords
This publication has 61 references indexed in Scilit:
- Public policy, political connections, and effective tax rates: Longitudinal evidence from MalaysiaJournal of Accounting and Public Policy, 2006
- Corporate governance and manager turnover: An unusual social experimentJournal of Banking & Finance, 2005
- Political control and performance in China's listed firmsJournal of Comparative Economics, 2004
- Chief Executive Officer Turnovers and the Performance of China's Listed EnterprisesSSRN Electronic Journal, 2004
- Corporate Governance in Asia: A SurveyInternational Review of Finance, 2002
- Do Some Outside Directors Play a Political Role?The Journal of Law and Economics, 2001
- Management Turnover and Governance Changes Following the Revelation of FraudThe Journal of Law and Economics, 1999
- SUCCESSION AS A SOCIOPOLITICAL PROCESS: INTERNAL IMPEDIMENTS TO OUTSIDER SELECTION.The Academy of Management Journal, 1993
- PERFORMANCE AND SUCCESSOR CHOICE: THE MODERATING EFFECTS OF GOVERNANCE AND OWNERSHIP.The Academy of Management Journal, 1993
- An analysis of stock price reaction to management change in distressed firmsJournal of Accounting and Economics, 1989