Does CEO turnover matter in China? : Evidence from the stock market

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Title: Does CEO turnover matter in China? : Evidence from the stock market
Author: Pessarossi, Pierre ; Weill, Laurent
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
Series number: 21/2012
Year of publication: 2012
Publication date: 24.9.2012
Published in: Published in Journal of Economics and Business, Volume 70, November–December 2013, Pages 27–42
DOI: 10.1016/j.jeconbus.2013.04.003
Pages: 310s.
Keywords: Kiina; osakemarkkinat; osakkeet; yritykset; johtajat; omistus; vaikutukset; hinnat; Bofit-kokoelma; valtionyhtiöt
JEL: G30; M51; P34; O16
Abstract: We study the consequences of CEO turnover announcements on the stock prices of firms in China, where most listed firms remain majority-owned by the state. Our proposition is that state ownership may affect stock market reaction to CEO replacement because state-owned firms often pursue multiple, potentially contradictory, objectives, i.e. economic performance and social objectives. Applying standard event study methodology to a sample of 1,094 announcements from 2002 to 2010, we find that CEO turnover typically produces a positive stock market reaction. The reaction is significantly positive, however, only for enterprises owned by the central government, and not significant for enterprises owned by local governments or privately owned enterprises. These results suggest that a CEO turnover in a central state-owned enterprise signals a renewed commitment to the economic performance objective by state officials. The small size of CEO labor market suggests that other shareholders have a relatively small pool of CEO talent to proceed to managerial improvement when a CEO turnover takes place. JEL Classification: G30; M51; P34; O16 Keywords: CEO turnover; corporate governance; state ownership; China; event study

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