Governance with multiple objectives : evidence from top executive turnover in China

Eric C. CHANG; Sonia Man-lai WONG

doi:10.1016/j.jcorpfin.2008.10.003

Governance with multiple objectives : evidence from top executive turnover in China

Eric C. CHANG, Sonia Man-lai WONG

Department of Finance and Insurance

Research output: Journal Publications › Journal Article (refereed) › peer-review

126 Citations (Scopus)

Abstract

We examine the relationship between Chief Executive Officer (CEO) turnover and the performance of listed Chinese firms and obtain two results. First, we find a negative relationship between the level of pre-turnover profitability and CEO turnover when firms are incurring financial losses, but no such relationship when they are making profits. Second, there is an improvement in post-turnover profitability in loss-making firms, but no such improvement in profit-making firms. These results indicate the existence of a time-varying objective function, whereby shareholders have a greater incentive to discipline their CEOs on the basis of financial performance when their firms are incurring financial losses rather than profits.

Original language	English
Pages (from-to)	230-244
Number of pages	15
Journal	Journal of Corporate Finance
Volume	15
Issue number	2
DOIs	https://doi.org/10.1016/j.jcorpfin.2008.10.003
Publication status	Published - 1 Apr 2009

Bibliographical note

This paper benefited immensely from insightful suggestions and comments from our editor, David J. Denis and an anonymous referee.

Funding

We acknowledge the financial support from the Hong Kong Research Grants Council (RGC) Competitive Earmarked Research Grant Awards 2004–2005 (LU7236/04H). Zhang Xuan and Yang Yong provided excellent research assistance.

Keywords

Firm performance
Managerial turnovers
Multiple firm objectives
State ownership

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10.1016/j.jcorpfin.2008.10.003

Cite this

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title = "Governance with multiple objectives : evidence from top executive turnover in China",

abstract = "We examine the relationship between Chief Executive Officer (CEO) turnover and the performance of listed Chinese firms and obtain two results. First, we find a negative relationship between the level of pre-turnover profitability and CEO turnover when firms are incurring financial losses, but no such relationship when they are making profits. Second, there is an improvement in post-turnover profitability in loss-making firms, but no such improvement in profit-making firms. These results indicate the existence of a time-varying objective function, whereby shareholders have a greater incentive to discipline their CEOs on the basis of financial performance when their firms are incurring financial losses rather than profits.",

keywords = "Firm performance, Managerial turnovers, Multiple firm objectives, State ownership",

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AU - WONG, Sonia Man-lai

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PY - 2009/4/1

Y1 - 2009/4/1

N2 - We examine the relationship between Chief Executive Officer (CEO) turnover and the performance of listed Chinese firms and obtain two results. First, we find a negative relationship between the level of pre-turnover profitability and CEO turnover when firms are incurring financial losses, but no such relationship when they are making profits. Second, there is an improvement in post-turnover profitability in loss-making firms, but no such improvement in profit-making firms. These results indicate the existence of a time-varying objective function, whereby shareholders have a greater incentive to discipline their CEOs on the basis of financial performance when their firms are incurring financial losses rather than profits.

AB - We examine the relationship between Chief Executive Officer (CEO) turnover and the performance of listed Chinese firms and obtain two results. First, we find a negative relationship between the level of pre-turnover profitability and CEO turnover when firms are incurring financial losses, but no such relationship when they are making profits. Second, there is an improvement in post-turnover profitability in loss-making firms, but no such improvement in profit-making firms. These results indicate the existence of a time-varying objective function, whereby shareholders have a greater incentive to discipline their CEOs on the basis of financial performance when their firms are incurring financial losses rather than profits.

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KW - State ownership

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EP - 244

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ER -

Governance with multiple objectives : evidence from top executive turnover in China

Abstract

Bibliographical note

Funding

Keywords

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