Empirical Study on the Top Management Turnover and Performance of Listed Companies in China

Recent research has argued that politica l and regulatory environments have asignifica nt impact on corporate governa nce systems. In particular, countries with poorinvestor protection laws and weak law enforcement have low levels of corporategoverna nce that ma nifests itself in substa ndard fina ncia l performa nce, ma nagemententrenchment, and the expropriation of minority shareholders. Based on the aboveconclusions, the paper analyzes the characteristics of top ma nagement turnover andcorporate governa nce of Chinese listed companies, and then studies the relationshipbetween top ma nagement turnover and company performa nce.The existed literatures implicate that China will have poor corporate governa nce andentrenched ma nagers as its lega l system is relatively underdeveloped and inefficient.However, using data on top ma nagement turnover in Chinese listed companies from year2002 to year 2005, the results refute the prediction of entrenched ma nagement. This paperfinds evidence of very high turnover of company chairmen and there are ma ny cases offorced departures. The results show that chairman turnover is related to a company’sprofitability. There is no relation between turnover and performa nce when the state is thedomina nt shareholder. Turnover-performa nce sensitivity is higher if lega l entities aremajor shareholders but the proportion of non-executive directors perversely affects it. Thispaper finds no evidence that profitability improves after a change in chairma n and thissuggests that a company’s governa nce structure is ineffective as it is unable to recruitsuitable replacements that can turn around its fina ncia l performa nce.According to the existed studies, this paper differentiates norma l turnover and forcedturnover, and introduces the performa nce and governa nce variables. Based on the data ofChinese listed companies, the results can provide efficient suggestion s to company on itsdecisions of top ma nagement turnover.