CAN A POWERFUL CEO AFFECT THE EFFECTIVENESS OF A CORPORATE GOVERNANCE? EVIDENCE FROM CEO TURNOVER IN CHINESE STATE-OWNED ENTERPRISES

Abstract

The main purpose of this paper is to explore the impact of CEO power on the efficiency of corporate governance from the perspective of state-owned enterprises’ CEO turnover in China. Using data of listed SOEs from 2004-2012, we find that: (1) CEO turnover is negatively correlated with company performance on the whole, yet the enhanced CEO power can reduce the possibility of being forcibly replaced due to the poor performance, showing that the power of CEO play a significant entrenchment role in the decisionmaking of executive turnover; (2) CEO turnover remarkably improves the company’s future performance. However, this promoting effect only appears after the turnover of CEO possessing less power; (3) Further studies also show that upgrading the administrative level and improving the institutional environment can inhibit the rent-seeking behavior of SOEs’ CEO. Our study is not only conducive to understanding the economic consequences of the power of SOEs’ chief executives, but also offers experiences and inspirations in terms of the policy-making on SOEs’ corporate governance and the mechanism reform of executive selection as well.