BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 21/2012:
Does CEO turnover matter in China? Evidence from the stock market
Pierre Pessarossi ()
and Laurent Weill
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.
Keywords: CEO turnover; corporate governance; state ownership; China; event study; (follow links to similar papers)
JEL-Codes: G30; M51; O16; P34; (follow links to similar papers)
31 pages, September 24, 2012
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