Can a powerful CEO avoid involuntary replacement?—An empirical study from China

Abstract

This study examines the impact of CEO power on forced CEO turnover from five perspectives, namely firm performance, structural power, ownership power, CEOs' political connections, and tenure power. Using panel data of listed companies in China, this study finds that firm performance has negative effects on forced CEO turnover. Similarly, CEOs' structural power, political connections, and tenure power can increase their ability to be insulated from involuntary replacement. In addition, two factors of CEO ownership power, the state-controlling shareholder and serving as the representative of the largest shareholder, appear to be effective in reducing the likelihood of forced CEO turnover.Keywords CEO . Forced turnover . Power . Chinese firms Academic literature has long been interested in the factors that determine CEO turnover since the 1960s partly due to the significant impact of a CEO on strategy formation and organization performance (

Executive compensation in Asia: A critical review and outlook

“…For example, some studies find that executive turnover is negatively related to firm profitability (Firth, Fung, & Rui, 2006b;Kato & Long, 2006a;Pi & Lowe, 2010;Shen & Lin, 2009), supporting the agency view on effective internal monitoring. Several studies also investigate the impact of state ownership on executive turnover.…”

“…In addition, a recent study by Pi and Lowe (2010) examines the relationship between CEO power and involuntary turnover. Using panel data of 325 listed companies in China from 1997 to 2006, they find that powerful CEOs are better able to decrease the possibility of being replaced involuntarily.…”

The private benefits of control in Chinese listed firms: Do cash flow rights always reduce controlling shareholders’ tunneling?

“…In contrast with the small shareholders who often "vote with their feet" when firm performance is poor because they have few incentives or abilities to monitor managers (Jensen & Meckling, 1976), block shareholders would have enough voting power and incentives to collect information and monitor managerial opportunistic behaviors Hengartner, 2006;Pi & Lowe, 2010). Therefore, their investment in corporations would be protected.…”

“…Therefore, board independence is supposed to provide defense against the tunneling behaviors by controlling shareholders and independent directors play a critical role (Hu et al, 2010;Shleifer & Vishny, 1997). As independent directors have no affiliation with the firms other than their directorship (Byrd & Hickman, 1992), they are expected to effectively balance the power of controlling shareholders and affiliated directors and reduce the misuse of power by insiders (Guan, 2007;Pi & Lowe, 2010). Hence, independent directors are expected to play a more active and effective monitoring role than executive (inside) directors (Hu et al, 2010;Johnson, Daily, & Ellstrand, 1996).…”

Corporate governance and Asian companies

“…Beyond the topics addressed by the papers in this Special Issue, additional papers in regular issues of APJM address other important issues in corporate governance, such as executive compensation(Sun, Zhao, & Yang, 2010), CEO dismissals(Li & Lu, 2011;Pi & Lowe, 2011), supervisory boards(Hu et al, 2010), private benefits of control(Luo, Wan, & Cai, 2011), business groups(Ramaswamy, Li, & Petitt, 2011), and political interference(Sun, Mellahi, & Liu, 2011).…”