CEO turnover,political connections,and firm performance: Evidence from China |
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| Institution: | 1. Institute of Economic Research, Hitotsubashi University, Tokyo, Japan;2. Faculty of Economics, Hosei University, Tokyo, Japan;3. Institute of Economic Research, Kyoto University, Kyoto, Japan;1. School of Business, Zhejiang University City College, Hangzhou, China;2. School of Management, Zhejiang University, Hangzhou, China;3. China Academy of Financial Research, Zhejiang University of Finance & Economics, Hangzhou, China;1. College of Business Administration, Capital University of Economics and Business, Zhangjialukou Road No.121, Fengtai District, Beijing, China;2. Department of Business and Information Technology, Missouri University of Science and Technology, 101 Fulton Hall, 301 W. 14th Street, 65409 Rolla, MO, USA;3. Nankai Business School, Nankai University, 94 Weijin Road, Tianjin, China;1. Business School, Zhengzhou University, Zhengzhou, PR China;2. Lingnan College, Sun Yat-sen University, Guangzhou, PR China;3. School of Finance & Southern China Institute of Fortune Management Research, Guangdong University of Foreign Studies, Guangzhou, PR China;1. SILC Business School, Shanghai University, Chengzhong Road 20, Shanghai, China;2. School of Accountancy, Institute of Accounting and Finance, Shanghai University of Finance and Economics, 111 Wuchuan Road, Shanghai, China;1. School of Accounting and Finance, Hong Kong Polytechnic University, Hong Kong;2. Lee Shau Kee School of Business and Administration, Open University of Hong Kong, Hong Kong |
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| Abstract: | In our analysis of 5738 CEO turnover events among A-share listed companies in China over the period of 1993 to 2019, we find that CEO turnovers on average hurt companies' market performance with significant negative abnormal returns in the event window. We then group the companies into four types based on whether the outgoing and successor CEOs have political connections, and then calculate the abnormal returns in the event windows of CEO turnovers once announced. We find that companies generally enjoy positive abnormal returns if they replace politically non-connected CEOs with connected ones. Such a positive effect is more evident among non-state-owned enterprises (non-SOEs), companies with worse performance, and companies with higher financial constraints. However, abnormal returns derived from hiring politically connected successor CEOs turn to negative following China's massive anti-corruption campaign in 2012. Our findings provide direct estimations of the economic value of CEOs' political connections for A-share listed companies in China and reveal boundary conditions that moderate the influence of hiring politically connected CEOs. |
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