Bureaucrats as managers and their roles in corporate diversification |
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| Institution: | 1. The Chinese University of Hong Kong, Hong Kong;2. Shanghai University of Finance & Economics, China;3. Harvard Business School, United States;4. U.S. Securities and Exchange Commission, United States;5. Australian National University, Australia;1. Business School, Beijing Wuzi University, #321 Fuhe Street, Tongzhou District, Beijing 101149, China;2. Faculty of Economics, Kyushu University, 6-19-1, Hakozaki, Higashiku, Fukuoka 812-8581, Japan;3. School of Management, China University of Mining and Technology, No.1, Daxue Road, Xuzhou, Jiangsu 221116, China;1. ESSEC Business School, France;2. Cass Business School, City, University of London, United Kingdom;1. Department of Finance and Insurance, Miller College of Business, Ball State University, Muncie, IN 47306, United States of America;2. Department of Accounting, Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai, China;3. Department of Accounting, Finance, & Business Law, The University of Texas at Tyler, Tyler, TX 75799, United States of America;4. Department of Finance, Muma College of Business, BSN3403, University of South Florida, Tampa, FL 33620, United States of America;1. Department of Finance, CUHK Business School, Room 1204, 12/F, Cheng Yu Tung Building, The Chinese University of Hong Kong, Shatin, Hong Kong;2. Faculty of Business and Economics, Room 1221, 12/F., K.K. Leung Building, The University of Hong Kong, Pokfulam Road, Hong Kong |
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| Abstract: | We examine the diversification choices and financial performance of companies run by former bureaucrats in China. We find that the ex-bureaucrat led companies are involved in more diversified business lines than other firms managed by professionals without such government backgrounds. While former bureaucrats that manage state-owned enterprises (SOEs) tend to operate in unattractive industries, those who manage private firms do businesses in more profitable, faster-growing, and more related industries. The diversification of private firms is helped by additional borrowing capacity brought in by ex-bureaucrat CEOs, while no such financing effect is found in SOEs. The overall diversification performance associated with bureaucrat CEOs is positive in private firms, but not in SOEs. As manifested by the different diversification strategies and outcomes between private firms and SOEs, the government-linked CEOs facilitate transfers of critical business resources that benefit either owners' or governments' goals. |
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