Firm performance, governance structure, and top management turnover in a transitional economy
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AbstractRecent research has argued that political and regulatory environments have a significant impact on corporate governance systems. In particular, countries with poor investor protection laws and weak law enforcement have low levels of corporate governance that manifests itself in substandard financial performance, management entrenchment, and the expropriation of minority shareholders. One implication of this research is that China will have poor corporate governance and entrenched managers as its legal system is relatively underdeveloped and inefficient. However, using data on top management turnover in China's listed firms, our results refute the prediction of entrenched management. We find evidence of very high turnover of company chairmen and there are many cases that we interpret to be forced departures. Our results show that chairman turnover is related to a firm's profitability but not to its stock returns. Turnover-performance sensitivity is higher if legal entities are major shareholders but the proportion of non-executive directors perversely affects it. We find no evidence that profitability improves after a change in chairman and this suggests that a firm's governance structure is ineffective as it is unable to recruit suitable replacements that can turn around its financial performance.
All Author(s) ListFirth M, Fung PMY, Rui OM
Journal nameJournal of Management Studies
Volume Number43
Issue Number6
Pages1289 - 1330
LanguagesEnglish-United Kingdom
Web of Science Subject CategoriesBusiness; BUSINESS; Business & Economics; Management; MANAGEMENT

Last updated on 2020-19-11 at 00:14