Bureaucrats as Successor CEOs

55 Pages Posted: 6 Oct 2016

See all articles by Tri Vi Dang

Tri Vi Dang

Columbia University - Department of Economics

Qing He

Renmin University of China

Date Written: 2016

Abstract

Chinese companies sometimes appoint a government official (bureaucrat) as CEO on the expectation of benefiting from the political connections of the new hire. Based on a sample of 2,454 CEO transitions our empirical findings are consistent with the implications of a simple contract model in oligopolistic markets. Firms that appoint a bureaucrat as CEO obtain more credit and subsidies. They have positive abnormal announcement returns, negative abnormal long-run returns and larger variance of long-run returns. Furthermore, they experience a deterioration in operating performances, increased rent-seeking behavior of the management and weakening of corporate governance. The results from the split share structure reform in 2005 corroborate the supportive findings for the preferential treatment hypothesis.

Keywords: bureaucrat, corporate political connections, CEO successions in China, governance

JEL Classification: G32, G34, M13

Suggested Citation

Dang, Tri Vi and He, Qing, Bureaucrats as Successor CEOs (2016). BOFIT Discussion Paper No. 13/2016, Available at SSRN: https://ssrn.com/abstract=2848828 or http://dx.doi.org/10.2139/ssrn.2848828

Tri Vi Dang (Contact Author)

Columbia University - Department of Economics ( email )

420 West 118th Street
New York, NY 10027
United States

Qing He

Renmin University of China ( email )

Room 705
Mingde main building
Beijing, Beijing 100872
China

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
325
Abstract Views
841
Rank
170,010
PlumX Metrics