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

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  • Chang, Eric C.
  • Wong, Sonia M.L.

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.

Suggested Citation

  • Chang, Eric C. & Wong, Sonia M.L., 2009. "Governance with multiple objectives: Evidence from top executive turnover in China," Journal of Corporate Finance, Elsevier, vol. 15(2), pages 230-244, April.
    • Handle: RePEc:eee:corfin:v:15:y:2009:i:2:p:230-244
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