22 March 2016
Qing He (School of Finance & China Financial Policy Research Center, Renmin University of China)
co-authored with Tri Vi Dang (Columbia University):
Bureaucrats as CEO Successors
In this paper we provide a theoretical and empirical cost and benefit as well as performance analysis of appointing bureaucrats (former government officers) as CEOs in 2,454 managerial successions in listed companies in China from 2001 to 2010. Consistent with the predictions of the model, we document the following empirical findings. Bureaucrat firms experience positive abnormal announcement stock returns which is strongest if the bureaucrat is an outside hire and the departing CEO is a non-bureaucrat. After the successions, bureaucrat firms have more long term loans and government subsidies than non-bureaucrat firms. However, their stock and operating performances deteriorate in the long run. This is associated with deterioration in financial policies, governance practices and increase in rent seeking. Overall, our results show that hiring a bureaucrat CEO can bring financial benefits, yet outside shareholders do not share these benefits but are actually worse off.
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