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Female executives, pay gap and corporate strategic deviance

PAN Zhen;HE Shiyuan;LI Jian

Business Management Journal,2019,Vol 41,No. 02

【Abstract】 Strategic deviance is important for companies to survive and develop. In dynamic and competitive market environment, on the one hand, through mutual learning and imitation, enterprises will have similarities in resource allocation, core competence and other aspects, and gradually form a set of conventional business development strategy in the industry. On the other hand, enterprises may deviate from the conventional strategies in the choice and implementation of strategies by virtue of their unique resources and capabilities in the industry. As for the exploration and analysis of the influencing factors of strategic deviance, existing researches are mainly carried out from three levels: enterprise level, team level and individual level. Although there are abundant researches in the past, there is still a large exploration space for the role of the executive team in the formation of strategic deviance. Top management teams (TMTs) are responsible for strategic choice and decision, so they are closely associated with strategic deviance. With the development of times, there is a significant change in Chinese traditional view of women. More and more women become members of TMTs and participating in strategic decision-making, but scholars rarely explore the relationship between female executives and strategic deviance. In addition to the demographic composition of the executive team, the incentive structure of the team also plays an important role in corporate strategy and organizational performance. Under the influence of salary incentive, the executive team will change its business behaviors, such as strategic decisions. Based on the upper echelon theory, optimal salary contract theory, social comparison theory and so on, using the sample of Chinese A-share manufacturing listed companies in Shanghai Stock Exchange and Shenzhen Stock Exchange from 2011 to 2015, this paper empirically tests the relationship among female executives, pay gap and strategic deviance. Meanwhile, this paper investigates whether pay gap moderates the relationship between female executives and strategic deviance. The results show that there is an nonlinear relationship between female executives and strategic deviance; there is a significantly negative relationship between TMT pay gap and strategic deviance, which indicates the larger TMT pay gap, the smaller strategic deviance; TMT pay gap has a contextual effect, that is to say, the relative TMT pay gap flattens the curvilinear relationship and the absolute TMT pay gap result in shape-flip. The contributions of this paper are as follows. Firstly, although there are a lot of studies exploring the effect of participation of female executives, they rarely research the relationship between female executives and strategic deviance. This paper enriches the researches of the factors of strategic deviance and the effect of female executives. Secondly, this paper is one of the first studies to reveal the curvilinear relationship between female executives and strategic deviance, and therefore enriches the studies about the curvilinear relationship between female executives and corporate strategy. Thirdly, previous studies have investigated the effect of TMT pay gap, but they still do not reach a consistent conclusion. The representative viewpoints can be divided into two kinds: some studies show that TMT pay gap may motivate executives to make greater efforts to manage enterprises, while the other studies show that TMT pay gap may lead to more negative emotion, more conflict and less cooperation. Moreover, previous studies rarely explored the relationship between TMT pay gap and strategic deviance, and the context effect of TMT pay gap on the relationship between female executives and strategic deviance. This paper supports the viewpoint of the latter, deepens the relevant research of influence factors of strategic deviance and TMT pay gap, and strengthens the explanatory power of the conclusions. Finally, this paper offers some suggestion on decision-making of strategic deviance, construction of TMT diversity and compensation management accordingly. Enterprises should keep female executives in a suitable range and control TMT pay gap reasonably to prevent negative influences. In addition, enterprises should take female executives into account while developing a reasonable TMT pay gap plan: during the increase in the proportion of female executives, the pay gap should be controlled to reduce the negative effects of female executives.

Vertical interlock, institutional environment and corporate innovation

YAN Zhenli;LIANG Shangkun;YUAN Chun

Business Management Journal,2019,Vol 41,No. 10

【Abstract】 The common phenomenon in practice is that many executives of listed companies (such as the chairman and general manager) also hold positions in their controlling shareholder’s firm (and in the data sample of this paper, 50% of the executives works in the controlling shareholder’ firm at the vertical level). However, in as early as 1998 and 2001, the China Securities Regulatory Commission put forward the requirements of Three Separates and Five Separates. The Company Law and other relevant legal provisions also make regulation on the affiliated executives. Judging from the provisions of laws and regulations, for listed companies of non-state-owned enterprises, the legal provisions only require that the executives should not hold other positions except for director in the shareholder’s firm. However, for any executives of the controlling shareholder, there is no requirement for whether they hold a position in the listed company. The legislative significance is to make sure that the executives of state-owned enterprises devote themselves to operating state-owned enterprises and protecting state-owned assets from loss. It can be seen that although the policies and regulations do not directly prohibit the executives of the listed company from working in the shareholder’s firm, they are cautious about the phenomenon. In addition, there is an inconsistency between the policy supervision and the practice of executives holding positions in the shareholder’s firm, which has attracted the common attention of managers, policy makers and regulators and other stakeholders. Claessens et al. (2000, 2002) found that controlling shareholders strengthened their control over listed companies in four ways: pyramid structure, cross-shareholding, different rights of the same share and affiliated managers. The fourth way is that the executives of listed companies also serve in the controlling shareholders’ firm, which is studied in this paper. Claessens et al. (2002) studied the economic consequences of the first three control methods on the firm value, and because of limited data, the fourth was not studied. Since then, researchers have explored the relationship between the fourth control method and firm value or corporate performance and agency problems. However, there is no consistent conclusion on the economic consequences of the fourth control method, which mainly results in two viewpoints. First, affiliated managers can help controlling shareholders to strengthen the supervision of executives in the listed company, reduce the management agency problems, and improve the quality of accounting information. Second, affiliated managers may become tools of controlling shareholders to tunnel the listed companies and damage the firm value. The affiliated managers play an important role in promoting the financing of the internal capital market, alleviating the agency conflicts between shareholders and management, and the conflicts of interests between controlling shareholders and minority shareholders, which are important factors that affect the corporate investment. However, so far, there are few existing studies on the impact of affiliated managers on corporate innovation. This paper studies the impact of vertical interlocks on the innovation. Using samples of Chinese listed companies from 2009 to 2016, we find that vertical interlocks inhibit the innovation. The number of patent applications (and patent authorizations) for companies with vertical interlocks is 14% (and 10%) lower than those without vertical interlocks. The negative effect of vertical interlocks on innovation is more obvious in regions with worse institutional environment. Considering the types of patent, vertical executives, and corporate property rights, vertical interlocks can significantly inhibit the application of invention patent, as well as the application and authorization of utility model patent. Moreover, the negative effect between vertical interlocks and innovation is more obvious when the vertical executives are chairmen in non-state-owned enterprises. The results of the path test show that vertical executives mainly restrain innovation by intensifying the tunneling of major shareholders. This paper expands the economic consequences of vertical interlocks and the influencing factors of corporate innovation, and at the same time, it provides certain enlightenment in improving corporate governance and strengthening policy supervision.

Local environmental governance pressure, executive’s working experience and enterprise investment in environmental protection: a quasi-natural experiment based on China’s “Ambient Air Quality Standards 2012”

ZHANG Qi;ZHENG Yao;KONG Dongmin

Economic Research Journal,2019,Vol 54,No. 06

【Abstract】 Industrial activity, while rapidly accumulating economic benefits, has caused severe environmental problems. Yet it is difficult for enterprises to invest their limited financial resources in environmental protection, as the short-term benefit is to the public rather than the enterprise. Furthermore, as enterprise tax on profit-making activities contributes to local economic growth and helps local officials achieve their performance goals, when effective outside intervention is lacking, local governments may even be pleased to see enterprises invest in profit-making rather than environmental protection. Although China’s central government has set up a series of polices, regulations, and institutions for environmental protection over the last 20 years, local government supervision of enterprises in polluting industries has not reached the expected goal. One reason is that the sheltering of local enterprises by local governments decreases their willingness to invest in environmental protection, as enterprises with executives who have working experiences in public office prefer low-cost penalties to high-cost environmental governance. The other possible reason is a lack of incentive for local officials to improve the environment. In the past, local officials were able to “tactically” modify environmental quality data to make them appear to meet central government targets. Under such circumstances, local governments use environmental deregulation to boost the local economy and tolerate or even permit excessive emissions by polluting enterprises. Identifying the main reason for the local environmental governance dilemma requires consideration of the combination of central government environmental policies, local official incentives to improve the environment, enterprise environmental protection decisions, and executive’s working expenience. Assuming that the connections between polluting enterprises and local governments are stable, we can systematically analyze the differential impact of a change in local official incentives on the environmental investment decisions of enterprises with and without executives who have working experiences in public office. We take the release of the “Ambient Air Quality Standards 2012” as an exogenous policy shock that gave local officials less control over environmental data and greater environmental governance incentives. Based on a difference in differences test, we find that before implementation of the new standards, enterprises with executives who have working experiences in public office invested significantly less in the environment than other enterprises; after implementation of the standards, there was a significantly greater increase in environmental protection investment by enterprises with executives who have working experiences in public office than those without. Further analysis shows the following aspects. (1) The more limited a local government’s financial resources is, the more it relies on environmental protection investment by enterprises with executives who have working experiences in public office; the more capable the government is to intervene to protect the environment, the more willing this type of enterprises are to invest in environmental governance. (2) Being state-owned and working experiences in government significantly increase the willingness of this type of enterprises to improve environmental governance. (3) Environmental subsidies may be an approach for governments to stimulate this type of enterprises to reduce pollution. The possible contributions of this study include the following. First, we investigate the influence of macro-environmental policy on micro-level environmental protection decisions by enterprises from the perspective of political economics. Second, we clarify the logical relations between local official incentives, executive’s working experiences, and environmental governance by local enterprises, and find that the core issue in China’s environmental governance is being lack of incentives for officials. When central government regulations effectively stimulate the willingness of officials to protect the environment, the inhibiting effect on environmental governance of collusion through government-enterprise connections is significantly alleviated.

Executive compensation and dynamic capital structure adjustment

XIE Chen;YING Weiwei;PENG Ziqian

Economic Review,2019,No. 01

【Abstract】 This paper investigated the relationship between the executive compensation in China’s listed companies and their capital structure adjustments. The results showed that the executive compensation could improve the adjustment of their target capital structures by lowering management agency costs. As the executive compensation increased, the capital structure adjustment of these companies would be significantly improved, which demonstrated that the executive compensation played a role of incentive and controlled the agency costs. Companies with executive ownership could adjust capital structures towards their target capital structures at a high speed. After group testing, we found that compared with that in companies without executive ownership, the effect of the executive compensation in improving the capital structure adjustment was significantly strong in companies with executive ownership, and this effect was only significant in the state-owned enterprises but not in the private ones.

The peer effects of senior executives’ stock selling and stock price crash risk

YI Zhigao;LI Xindan;PAN Zicheng;MAO Ning

Economic Research Journal,2019,Vol 54,No. 11

【Abstract】 A large number of managers in China sell their stocks on a large scale, and many executives “sell stocks in the group.” The stock selling behavior of company insiders has a direct effect on their companies’ stock prices. In addition, because of the signal function of their reduction behavior, it can trigger panic and encourage investors to sell their stocks, resulting in a sharp fall in stock prices, which will jeopardize the healthy and stable development of the stock market. The literature on insider selling focuses on the influence of endogenous factors, such as information advantage and corporate governance, on executives’ stock selling behavior. However, in reality, companies do not operate in isolation and are part of a given social environment. Thus, any experienced manager knows to keep a close eye on his/her peers’ behavior. Recent research also reveals the obvious peer effects on firms’ executive compensation schemes, capital structure, and dividend payments. At the same time, as controllers of their company, managers’ selling behavior usually conveys negative information, such as the unoptimistic company prospects and the lack of confidence. In addition, there is usually a tendency for strategic disclosure to divulge good news and cover bad ones. Thus, to boost share prices and reduce the negative effects of selling behavior, this practice can help transfer wealth successfully. However, when negative information accumulates and is eventually published (with the negative shock of falling stock prices), it is likely to lead to a stock price crash and even to rapidly increase the systemic risk of the capital market. This paper used executives’ stock selling data in China from January 2006 to December 2017. From the perspective of peer effects, we examine the exogenous effects of executives’ reduction in the same industry and region on managers’ sock selling behavior and its consequences on the market. We obtain the following results. First, senior managers’ stock selling has obvious peer effects, that is, it encourages managers from peer firms in the same industry and region to sell their stocks, illustrating the phenomenon of “selling stocks in the group.” Second, the greater the uncertainty of the external environment and the lower the rank of senior executives is, the more obvious the peer effects of executives’ reduction will be. Moreover, executives’ sock selling behavior is influenced by the leaders and followers of the industry and region, that is, the phenomena of “tendency to go up” and “frequency imitation” coexist, although leaders have a greater influence. Moreover, peer effects are more evident in the high-tech industry. Third, these peer effects can lead to a serious stock price crash for firms, industry segments, and area segments. Finally, managers’ “clearance selling” can lead to greater peer effects and serious stock price crash risk. The contributions of our study are the following. (1) We examine the exogenous effects of managers’ stock reduction in the same industry and region on corporate managers’ stock selling behavior. Our study complements previous studies on senior executives’ reduction from the perspective of information advantage and corporate governance, broadening the research perspective and content of insider trading. (2) The literature on the peer effects of corporate decision-making mainly focuses on firms’ capital structure, executive compensation scheme, and information disclosure. In addition, most studies only examine the existence and formation mechanism of peer effects, with few studies investigating peer effects in insider trading and their economic consequences. We analyze the peer effects of managers’ sock selling behavior, then examine the effects of this behavior on stock price crash risk, thus enriching the literature on the peer effects of corporate decision-making. (3) There is little research on stock price crash risk involving multiple companies. Based on the method of measuring corporate stock price crash risk, we construct industry-specific and region-specific stock price crash risk measurement indexes and test the effects of the peer effects of senior executives’ stock selling on stock price crash risk at the company, industry, and regional levels, enriching research on stock price crash risk.

Influence of mandatory requirement of performance hurdles in executive equity incentive contracts on corporate management performance

DAI Lu;SONG Di

China Industrial Economics,2018,No. 04

【Abstract】 The design of executive equity incentive is an important problem to influence the consequence of executive equity incentive. However, extant literature pays less attention on the impact of design of equity incentive contracts on firms’ internal control. In the real world, all the A-share listed companies in China must set some performance hurdles in their executive equity incentive contracts since 2008. Based on the institutional setting, this paper is aimed to examine the influence of mandatory setting and disclosure of performance hurdles in the executive equity incentive on the internal control effectiveness of those listed companies. Specifically, this paper focuses on the listed companies that have implemented equity incentives since 2008 with the divergent theoretical lens related to equity incentive. The results of empirical examination show that the higher level of performance hurdles of the companies, compared with their historical benchmark or their peer average level, produces the more effective internal control after the adoption of performance vesting equity incentives. Moreover, the performance hurdles set by equity incentive contracts ultimately promote performance goals by virtue of the path of improving the effectiveness of internal controls. Thus, the conclusion actually responds to the theoretical tensions about whether executives’ equity incentive is to alleviate the agency problem or generate new agency problems, and supports the optimal contracting theory at last. In terms of the practical implications, this paper helps to reveal the economic outcome and its contigency of mandatory performance hurdles in executive equity incentive of listed companies in China.

Do managers’ emotions really matter in disclosure?

WANG Fule

Business Management Journal,2018,Vol 40,No. 02

【Abstract】 Because of development of Internet media, the channel of disclosure has expanded from traditional news reports and announcements in newspapers to online news conferences, interviews with managers and managers’ social networks. Therefore, the spokesmen of firms should attract the attention from the market in the rich media era. Blankespoor et al. (2016) find that the first impressions of the CEOs of listed firms, generated in IPO roadshows, are related to the variation of return. Therefore, in-depth analysis on the top managers’ activities in market is of great significant. Employing the IPO roadshows of China’s A-share market, this paper uses scientific methods to analyze managers’ emotions, which are shown in their presentations at IPO roadshows. This paper finds that more positive emotion shown by managers leads to more participation of investors in IPO bidding and more underpricing, and that more negative emotion results into less bidding. This paper holds that more negative emotion shown by managers seems like a sign of vigilance, so the investors might be more cautious about investment, which might reduce the investment activities in the IPO market. Nevertheless, with the disclosure of more information with higher quality, the influence of managers’ emotions will disappear soon and this kind of weak information has no long-term effect. Furthermore, we compare managers’ emotion variations before and after IPOs, and find that managers’ emotions shown in their presentations imply valuable information. In the robust test, we use the Facereader software to analyze the data again, and then get similar findings. This indicates the wide applicability of the emotion judgment discussed in this paper. In order to ensure the robustness of the conclusions, this paper employs the voice fluctuation as the instrumental variable, which verifies the robustness of the conclusions again. Not much attention has been paid to IPO roadshows in the academia, although IPO roadshows are designed as the first public disclosure of listing firms. The first purpose of this paper is to re-examine the importance of IPO roadshows. Roadshows should not be regarded as the re-statement of firms’ public news. Instead, they should supply more detailed information and interact with small investors. Unfortunately, firms’ managers and underwriters often have no effective responses to small investors even if they raise reasonable questions online, which makes roadshows unable to serve as valuable information disclosure activities in the process of IPO. To sum up, managers’ emotions serve as disclosure in different public shows, which should be considered as a channel of disclosure. This also means that the activities, speeches and appearances of managers are factors affecting pricing. In this era, the Internet has been the most important communication platform, and thus public firms should pay more attention to informal disclosure channels, such as roadshows, stockholder meetings and especially the additional information unconsciously implied by the atmosphere and words at that time. Due to the lack of professional managers in market during economic development, the quality of firms’ managers is uneven. Especially for private firms, the public behaviors of managers are very important to market performance. Besides, this paper examines the managers’ behaviors with anthropology, psychology and physiology, and provides preliminary evidence about the influence of managers’ emotions on market performance. In addition, the mechanism behind the function of managers’ emotions in their behaviors is an important direction for future research. This paper is the first study on managers’ emotions in finance and corporate governance in China, which is also a part of the series of studies on managers’ physical characteristics (Shen et al., 2016a, 2016b, 2017). This paper holds that a scientific direction is to connect the research with psychology, sociology and physiology. Although this paper has provided insights into this area, further efforts should still be made to obtain more accurate evidence based on physical and neural characteristics. This might be a tough way, because the neurology which could explain the superficial phenomena lacks illustration of the corresponding theory and mechanism. Hence, this paper also has limitations, as it is an issue of probability that whether a speaker’s expressions indicate the emotion. In this respect, insights into the mechanisms behind the expressions and emotions from the aspect of neurology should be the first step in further research.

What is scholars’ value? Executives’ academic capital on companies’ innovation performance

CHEN Chunhua;ZHU Li;SONG Jiwen

Business Management Journal,2018,Vol 40,No. 10

【Abstract】 In the era of mass entrepreneurship and innovation, China has continuously deepened its innovation-driven development strategy, and innovation has become a significant engine to sustain the national economic growth. The key element for companies to achieve innovation success in the 21st century is to establish and maintain efficacious network relationships. The concept of network-based social capital, while explaining corporate performance, depends on general social capital from both formal and informal systems. The abundant social capital embedded in social network is a decent shortcut for companies to absorb resources. Ever since the 1990s, the concept of “social capital” has been noticed in the field of management, and has gradually evolved into a research hotspot. Also, the application of social capital in the area of technological innovation has become a relatively new research topic. Since the concept of “social capital” was introduced to the academic circles, it has exhibited a robust explanatory power and thus attracted growing attention and favor from scholars. The measurement and definition of social capital are stratified and diversified, among which researchers focus on the corporate-boundary-based measurement and synergy of internal and external capital. Adler proposed that the main function of “internal social capital” was to form actors’ internal relationship, thereby improving the ability of collective action, while “external social capital” was the manifestation of the relationship between actors and external society, which functioned to acquire external resources. The study of executive’s social capital shows that there exist two forms of social capital, “inner-adhesive type” and “bridge-type” respectively. The former, inner-adhesive type, describes the ability of connecting executives, including the frequency and validity of contacts between members and their trustworthiness. The latter, bridge type, is characterized as the relationships between executive members and either internal departments or external organizations related. This study combines the two divisions above, and suggests that internal social capital mainly functions in the pattern of inner-adhesive type, where decent connecting relationship brings about shared values among members and strong intra-communication ability as the total internal resources of company. External social capital, however, has a bridge-type function, reflected by the total external social resources of company, that is, the connections between executives and external organizations or institutions. In this article, based on social capital theory and resource dependence theory, we explored impact of executives’ academic capital on companies’ innovation performance and the synergy effect of internal and external social capital in the process of executives’ academic capital creating values, by use of a sample of all the listed companies with interlocking directorate networks from 2008 to 2013 in China. The following results are revealed. (1) Executives’ academic capital has a positive impact on corporate innovation input. (2) Executives’ academic capital plays a mediating role between executives’ academic social capital and corporate innovation performance. (3) The number of companies that interlocked directors hold position in has a positive moderating impact on the relationship between executives’ academic capital and corporate innovation performance. (4) The number of companies that interlocked directors hold position in has a positive moderating impact on the relationship between corporate innovation input and corporate innovation performance. (5) The number of companies that interlocked directors hold position in positively moderates the mediating effect of innovation input between executives’ academic capital and corporate innovation performance. These findings enrich the quantitative research on the value of scholars’ academic capital and reveal the collaboration effect of internal and external social capital on corporate innovation performance. Therefore, this study provides both theoretical guidance and empirical evidence for the mechanism of how academic capital impacts corporate innovation performance.

Research on risk offset effect of executive compensation in incentive system design

ZHOU Zejiang;MA Jing;HU Liufen

China Industrial Economics,2018,No. 12

【Abstract】 How to make top management incentive more effective and decrease agency cost has attracted high attention from both of the theory and practice cycles. The existing studies have focused on the rationality dimension of performance evaluation and influencing factors of compensation-performance sensitivity, and ignored the role and function of corporate risk taking. Different from previous literature, this paper tried to test the role of corporate risk taking in the process of setting executive compensation contracts. This paper analyzed the data of A-share listed companies from 2005 to 2016 in China’s capital market, with the following findings: Firstly, after operating performance is controlled, there is a significant positive correlation between risk taking level and executive compensation in the presence of the risk offset effect. Secondly, as risk aversion of top management strengthens, the risk offset effect of executive compensation increases. Thirdly, the risk offset effect of executive compensation is higher in an effective manager market environment. The above results indicate that risk taking is an important inherent influencing factor of executive compensation besides operating performance, and the effects are limited by internal and external situational factors such as risk aversion of top management and manager market. It is supposed to incorporate risk taking level into the process of setting executive compensation in the future, and make further adjustment according to internal and external environments. Further supplementary test shows that executive compensation plays partial mediation effect between risk taking and corporate value, which supports the rationality of incorporating corporate risk taking into the decision-making on compensation contracts. This paper clarifies the role of risk taking in executive compensation contracts and helps understand and recognize how to enhance effectiveness of executive compensation contracts from the risk taking perspective.

Rule fairness and employee efficiency—a study based on the pay stickiness gap between executives and employees

LEI Yu;GUO Jianhua

Management World,2017,No. 01

【Abstract】 At the present stage of economic and social development in China, the importance of rule fairness has become increasingly prominent. The rule fairness has become the foundation and pillar for realizing individual ideals and the “Chinese dream.” This paper studies the significance of rule fairness from the perspective of the pay gap between executives (managers) and employees. Specifically, this paper argues that the pay stickiness of executives higher than that of employees is a kind of unfairness in distribution rules. On this basis, it is found that the rule unfairness can reduce employee efficiency, and will weaken the incentive effect of pay gap on employees. This result implies that the rule fairness is conducive to efficiency improvement and is a necessary prerequisite for the disparity in distribution results to promote efficiency. This paper provides a micro-annotation to the significance of rule fairness.

Who are the real innovators: senior executives or core employees?

CHEN Xiaodong

Finance & Trade Economics,2017,Vol 38,No. 12

【Abstract】 How to optimize the human capital incentive mechanism to improve corporate innovation has become one of the hottest topics on corporate governance and corporate finance. By comparing the core employee stock ownership plan (ESOP) and executive equity incentive, this paper attempts to answer who is the main innovator in corporate innovation. Focusing on the implementation of the core ESOP and executive’s equity incentive plans in the non–financial listed companies of A–share from 2006 to 2015, this paper mainly answers the following questions: Can core employee stock ownership plan improve corporate innovation? Compared to the executive equity incentive, is core ESOP the main innovator influenced by the incentive effect of corporate innovation? What is the influencing mechanism between core ESOP and corporate innovation? We show that (1) the core ESOP improves the ability of corporate innovation; (2) the incentive effect of core ESOP is significantly greater than that of executive equity incentive; (3) Compared to the equity incentive scheme, the core ESOP reduces the proxy costs between executives and core employees, and improves corporate innovation by narrowing the income gap between core employees and executives. These results are helpful to find the source of corporate innovation theoretically, and to provide theoretical grounding and policy references for the Chinese mixed ownership enterprises in promoting core employees stock ownership plan.

Do managers’ physiological features really matter in IPO market?

SHEN Yifeng;WANG Fule;HUANG Juanjuan;JI Rongrong

Management World,2017,No. 09

【Abstract】 Until now, studies on CEOs’ characteristics largely focus on acquired characteristics such as personal experience and education background rather than inheritable characteristics. Based on CEOs’ data in the IPO roadshows in Chinese Growth Enterprise Market (GEM), this paper examines the relationship between CEOs’ innate characteristics, appearance and voice, and IPO performance. We found that (1) investors prefer companies with good-looking CEOs. CEO’s appearance is negatively associated with the success rate of new shares purchase while positively related to turnover rate on the first trading day. (2) “Beauty Premium” stands in IPOs. CEOs with better appearance are associated with lower IPO underpricing, but which is not significantly coincident for those with poorer appearance. (3) Investors show “Low Voice Preference.” Lower-voice pitch of managers is positively related to higher passion of IPO market and lower IPO underpricing, as well as higher firm value. (4) Comparatively, the voice influences are more stable than appearance. Employing machine learning to obtain the unique data, this study extents the research from CEOs’ acquired characteristics to inheritable characteristics through offering direct evidences in the IPO market, and supplies the apparent evidences for the relationship of inheritable characteristics and corporate finance.

The corporate governance function of directors’ and officers’ liability insurance: based on the perspective of the two types of agency costs

LING Shixian;BAI Ruifeng

Finance & Trade Economics,2017,Vol 38,No. 12

【Abstract】 directors’ and officers’ liability insurance is a hot issue in the field of corporate finance and corporate governance, but its function of governance has not been unanimously recognized. Based on the data of Chinese listed companies of Shanghai and Shenzhen exchanges from 2009 to 2015, using the mixed cross-sectional ordinary least squares method, Heckman’s two-stage method and propensity score matching, this paper tested the relationships between variables of directors and officers insurance and the first and second types of agency costs. The findings show that variables including the introduction of directors and officers insurance, time past after such introduction, the insured amount and the relative insured amount can effectively reduce the two types of agency costs of listed companies, indicating that directors and officers insurance has incentive effect and external supervision effect, and is an effective mechanism of corporate governance. Meanwhile, based on ownership grouping, the findings show that directors and officers insurance plays a stronger role in corporate governance in non-state-controlled listed companies than it does in state-controlled listed companies. The study suggests that research of the governance mechanism of directors and officers insurance be deepened, and the environment and system where directors and officers insurance plays a role in governance be improved.

Cross-system ties of SOE senior managers and mixed-ownership reform

CHEN Shihua;LU Changchong

Management World,2017,No. 05

【Abstract】 The main purpose of mixed-ownership reform is to break up the system barriers between the state-owned enterprises (SOEs) and the private enterprises, and to further strengthen the integration of these two types of firms. Could those SOEs’ managers with cross-system ties help to facilitate the mixed-ownership reform? Since share transfer from SOEs to private enterprises is an important implementation path for the mixed-ownership reform, this paper examines the influences of managers’ cross-system ties on the share transfer from stated-owned companies to private enterprises. This paper finds that compared with the SOEs whose managers do not have cross-system ties, those companies whose managers have cross -system ties are more likely to transfer their state-owned shares to private enterprises. When the cross-system ties are formed by inside directors, and when the transfer of state-owned shares is in the regulation industries or does not have impact on the change of the control right, the positive influences of manages’ cross-system ties on the transfer of state-owned shares to private enterprises are stronger. The paper further examines the influence mechanism and finds that the influences of managers’ cross-system ties on the transfer of state-owned shares mainly depend on both the transfer of transaction information or environment information and the alleviation of ideological barriers. The findings indicate that it is important to facilitate the information sharing between SOEs’ managers and private enterprises’ managers, and to create an environment for the fair transaction of state-owned shares for promoting the mixed-ownership reform.

Managerial academic experience and cost of debt

ZHOU Kaitang;MA Zhiming;WU Liansheng

Economic Research Journal,2017,Vol 52,No. 07

【Abstract】 In the great wave of China’s economic reform and opening up, especially since the 1990s, thousands of cadres and professors have moved from non-commercial occupations to companies and entrepreneurship, a phenomenon popularly termed xiahai (Dickson, 2007). Specifically, a majority of xiahai entrepreneurs known as wenren xiahai are former teachers and professors from colleges and universities (Du, 1998). This is unique in the development of China’s enterprises, and such a phenomenon rarely appears in Western countries like the United States and the United Kingdom. According to the statistics in our sample, about 40.65% of listed companies have executives with academic experience. Therefore, exploring the effect of managerial academic experience is helpful to understand China’s enterprise management and economic development. Theoretically, due to the lengthy time of academic training, executives with academic experience are more rigorous and risk-averse in their decision making, with relatively more dedication to independent thinking (Francis et al., 2015). Meanwhile, academic experience also makes executives more self-disciplined and self-supervised, which makes top executives with academic backgrounds typically have higher social responsibility and ethical standards (Cho et al., 2015). Taken together, executives with academic experience are more risk-averse, leading to lower levels of firm information risk. Managerial academic experience as a mechanism of self-restraint and supervision can also reduce the agency risk between managers and debt-holders. Both lower levels of information risk and agency risk reduce a firm’s financing costs. Therefore, we expect a negative relationship between managerial academic experience and corporate cost of debt. Based on Shanghai and Shenzhen A-share listed firms in China between 2008 and 2014, this paper examines the effect of managerial academic experience on corporate cost of debt. The results showed that managerial academic experience can reduce a firm’s debt financing costs by about 6.4%. The results hold when we used instrumental variable two-stage regressions, propensity score matching (PSM) approach, and firm fixed-effect regressions to address endogeneity concerns. We further investigated possible underlying mechanisms and find that managerial academic experience reduces earnings management and increases accounting conservatism, with the effect being more pronounced in firms that are audited by small audit firms and have less analyst coverage. The results suggested that managerial academic experience affects a firm’s cost of debt by reducing information risk and agency risk. Further analysis showed that the effect is stronger in firms that face severer financial constraints, and that managerial academic experience also makes firms more likely to obtain bank loans. Our study contributed to the literature in several ways. First, this paper was the first to examine the effect of managerial academic experience on firm behaviors and the signal to capital market participants. The large number of executives with academic experience is an important unique phenomenon brought by the wave of xiahai in China’s economic reform and opening up. This paper thus has great significance to understanding China’s enterprise management and economic development. Second, this paper extended the literature on the influence of managerial attributes on corporate cost of debt. Studies have found that corporate cost of debt is affected by managerial attributes such as education background. Education is more about an executive’s individual knowledge and capability, while academic career experience is more related to professional discipline (Kaplan et al., 2012; Cho et al., 2015). This paper was thus different from the research on managerial education background. Third, this paper found that executive academic experience can play a role in corporate governance, thus enriching the corporate governance literature. The results in this paper suggested that when external monitoring is weak, managerial academic experience as an internal self-restraint mechanism can be a substitute mechanism. This conclusion has important implications for enterprise executives in emerging markets where external governance is relatively weak.

Can senior executives with overseas experience improve enterprises’ investment efficiency?

DAI Yunhao;KONG Dongmin

The Journal of World Economy,2017,Vol 40,No. 01

【Abstract】 Human capital plays a key role in enterprises. However, the supporting evidence from empirical research is still scarce due to the limited data. By manually collecting a unique dataset about non-financial listed enterprises’ brain gain characteristics from Shanghai Stock Exchange and Shenzhen Stock Exchange between 2000 and 2009, this paper becomes the first one that investigates how the returnees affect enterprises’ investment efficiency from the perspective of human capital. The findings are as follow. (1) The returnees do have the ability to improve enterprises’ investment efficiency. (2) This promoting effect mainly reduces over-investment and is not significant on under-investment. (3) After the introduction of ownership structure into analysis, we find that the effect of returnees is the most remarkable among centrally-administered state-owned enterprises, compared with locally-administered state-owned enterprises and non-state-owned enterprises. These results highlight the importance of human capital and also have practical implications for the talent hiring policies of enterprises.

Influence of behavioral integration of top management team on business model innovation

HU Baoliang;ZHAO Tianya;YAN Shuai

Technology Economics,2017,Vol 36,No. 07

【Abstract】 This paper aimed to explore the influence of behavioral integration of top management team (TMT) on business model innovation and its path. It proposed the hypotheses of the hierarchical relationships between three dimensions of TMT behavioral integration (collaborative behavior, information exchange and joint decision-making) and business model innovation, and used the data of 177 firms to test these hypotheses by the hierarchical regression analysis. The results show as follows: collaborative behavior, information exchange and joint decision-making affect business model innovation positively; both collaborative behavior and information exchange affect business model innovation through the mediating role of joint decision-making.

Strategic media disclosure and wealth transfer: evidence from executives’ stock selling

YI Zhigao;PAN Zicheng;MAO Ning;LI Xindan

Economic Research Journal,2017,Vol 52,No. 04

【Abstract】 Increasing executives in China are reducing their stock shares. The statistics show the market value of stocks that executives sold were about CNY 96 billion and 113 billion in 2016 and 2015, 1.34 times and 1.86 times, respectively more than those in 2014. Obviously, the size and growth rate of executives’ stock selling were very amazing. As executives are the actual controllers of companies, the large-scale stock selling is usually viewed as a bad sign for a company, which may lead to sharp fall of stock prices. Furthermore, executives are also able to take advantage of their insider status to boost the stock price during stock selling, which is harmful for individual investors’ interests and not conducive to the development of Chinese stock market. Using samples of executives’ stock selling from 2006 to 2014 in China’s A-share market and press coverage from newspapers and the Internet, we study the strategic behavior of deliberate media disclosure and its market effects. To identify media disclosure management strategies, we adopt the following three methods. First, we use statistical descriptive analysis to determine whether or not media attention and coverage tendency change significantly in different stages of stock selling. Second, we use a dummy variable to demonstrate the effect of executives’ stock selling on media coverage (including media attention and coverage tendency). Finally, we identify whether or not executives actively managed media coverage during stock selling by testing whether or not the stock price reversed on their stock selling. We find that executives actively managed media coverage during their stock selling. First, a firm’s level of media attention will rise before stock selling, peak during it, and drop significantly or recover to a normal level after. Second, the media disclosure focus varies in different periods: executives focus on attracting media attention before stock selling but obtaining more favorable tendency during the stock selling. Third, the number of sold stocks and the number of participants have significant effects on media disclosure strategy, but executives’ positions have insignificant effects. Fourth, executives can acquire more wealth by managing their media disclosure strategies to boost the stock price in the short term and cause the stock price to reverse in the long term. Finally, the external influence of managing media disclosure will induce other peer executives to reducing shares. In short, media disclosure has become a vehicle for seeking private interest. Our findings have important implications for information disclosure regulating, insider trading, and investment decision. Our research contributed by the following. (1) Compared with the existing literature about information disclosure management during major shareholders’ stock selling (Wu & Wu, 2010), we focused on information disclosure management by executives during their stock selling, namely their active media disclosure management in stock selling from the perspective of trade-driven news. This paper contributed to the research of insider trading and information superiority. (2) Past literatures on media disclosure management during important events involved overall interests of companies, such as merger and acquisition (Ahern & Sosyura,2014), scandals (Zavyalova et al., 2012; Gu, 2016) and equity financing (Cai et al., 2014; Wang et al., 2015; Wang & Li, 2016). Few studied this strategic behavior in the situation directly concerning executives’ private interests. We explored executives’ use of media disclosure strategies to seek private interests in stock selling and further enriched the literature about media disclosure management of companies. (3) We found that the external effect of media disclosure management induces other peer executives to take free ride and reduce shares. Such finding may explain the cause for “peer effects” in corporate decisions (Leary & Roberts, 2014).

Can information disclosure of executive compensation enhance the effectiveness of compensation contract?

JIANG Wei;PENG Chen;HU Yuming

Business Management Journal,2016,Vol 38,No. 02

【Abstract】 The demand for greater corporate compensation disclosure has increased considerably in recent years, especially since the 2008 financial crisis. However, studies of executive compensation disclosure have yielded many different results. On the one hand, improved compensation disclosure has been found to be associated with better governance, higher pay-for-performance sensitivity and improved monitoring by stakeholders (Perry and Zenner,2001; Bizjak et al.,2011). On the other hand, compensation disclosure regulations appear to have had very little mitigating effect on the problems involved in corporate compensation practices (Faulkender and Yang,2013). Improved disclosure might also have unintended consequences if it aggravates agency problems and affects related costs (Hermalin and Weisbach,2012). Compensation disclosure in emerging markets can be especially difficult to analyze because of weak corporate governance, lax enforcement of security laws and a poor disclosure environment. Leuz and Wysocki (2008) pointed out that there have been major changes in disclosure regulations in many emerging markets. However, because institutional and economic factors vary in different markets the effects of these regulations may also vary. This article examines whether information disclosure of executive compensation has enhanced the effectiveness of compensation contract in Chinese listed companies, by testing the change of executive pay—performance sensitivity before and after the 2005 regulation on executive compensation disclosure, since executive compensation disclosure in China is fairly limited. The empirical results show that for SOEs in regulated industry, there was no change of executive pay—performance sensitivity before and after 2005. The reasons may be that on the one hand, because of the “internal labor market”in SOEs in regulated industry, compensation information at the individual level may not provide much information for their managers. On the other hand, compensation of managers in SOEs in regulated industry is subject to more regulation, and high executive compensation in those firms is more likely to attract the attention of the public and investors. All of the above may lead to no change of executive pay—performance sensitivity before and after the 2005 regulation on executive compensation disclosure. For SOEs in competitive industry, executive pay—performance sensitivity became weakened after 2005, especially for those firms in regions with low marketization level. The reasons may be that after the 2005 regulation on executive compensation disclosure, it is easier for managers in SOEs in competitive industry to justify a higher pay increase by opportunistically using peer compensation information at the individual level, especially for those firms in regions with low marketization level where corporate governance is weaker. However, for Non-SOEs in competitive industry, executive pay—performance sensitivity became strengthened after 2005, especially for those firms in regions with high marketization level. The reasons may be that after the 2005 regulation on executive compensation disclosure, it is more important for Non-SOEs in competitive industry to provide higher managerial pay to obtain better management talent, especially for those firms in regions with high marketization level where the managerial market becomes more competitive. These results implicate that information disclosure of executive compensation does not necessarily lead to the improvement of effectiveness of compensation contract. For different types of companies, its effect may be different, which depends on the corresponding competitiveness of managerial human capital and corporate governance. For example, for SOEs in regulated industry it is necessary to introduce and improve the managerial market when enhancing information disclosure of executive compensation. For SOEs in competitive industry, it is necessary to improve corporate governance and mitigate the problem of insider control before enhancing information disclosure of executive compensation. This article not only enriches the studies on relation between information disclosure and executive compensation, but also provides guidance on the practice of improvement of executive compensation information disclosure by regulators.

Religious beliefs and personal social responsibility tone of senior management: a perspective based on the personal donation behaviors of senior management in China’s private enterprises?

ZENG Jianguang;ZHANG Ying;YANG Xun

Management World,2016,No. 04

【Abstract】 With the deepening of China’s reform and opening up, the awareness of social responsibility of top management in private enterprises is enhancing. Top executives with religious beliefs in particular are making an increasing personal donation, which has a good social influence and also stimulates social progress. Accordingly, by examining whether the top executives with religious beliefs in private enterprises have a consciousness to avoid risks when making decisions on personal donations, this paper attempts to explore the psychological incentive for the social responsibility of senior management, the “Tone at the Top.” The study found that top executives with religious beliefs in private enterprises tend to make more personal donations, which is very prominent in high-risk businesses. Further study found that the marked influence of top executives in private enterprises believing in Western regions on their social responsibility awareness is less common than that of those believing in Oriental religious beliefs. Research of this paper showed that the social responsibility tone of the business executives contains the internal appeal of “risk aversion”; this also indicated that senior management of private enterprises may not believe in religions based on their complete identification with the religious values from the bottom of their hearts; their active fulfillment of social responsibilities, to some extent, reflects their wish for safety.

Negative feedback and top management turnover: an empirical analysis of listed companies in China

GE Fei;LIAN Yanling;HE Xiaogang

Business Management Journal,2016,Vol 38,No. 01

【Abstract】 When enterprises encountered the problem of negative feedback, changing the human capital of top management is the most sensitive decision as it subjects enterprises with comprehensive risks. Few scholars have studied personnel reform from the perspective of negative feedback. In particular, how to affect the change of top management personnel has not yet received enough attention. Based on data of Chinese listed companies, this article has analyzed the problem from two dimensions: expectation gap and organizational decline and generated the following conclusions: First, non-linear relationship exists between expectation gap and top management turnover. In other words, under the lower expectation gap, the companies would hire more top managers, and under the higher expectation gap, the companies would fire more top managers. Second, non-linear relationship also exists between organizational performance decline and top management turnover, namely under lower organizational performance decline, the companies would be more likely to fire top managers compared against higher organizational decline. Third, the slack resources also had an impact on top management turnover, namely more slack resources promote changes in top management turnover. Fourth, the government would strongly support companies with great performance decline and high expectation gap, in which political resources would decide a company’s development.

?Kinship and senior executive change in family business: an explanation with limited altruism

DENG Hao;HE Xiaogang;XIAO Weifan

Business Management Journal,2016,Vol 38,No. 10

【Abstract】 Whether family governance is effective has been the focus of discussion in the research on corporate governance in family enterprises. We argue that the main reason for the inconsistency in the study conclusions is that the human nature assumption of egoism or altruism is too extreme, and thus we put forward limited altruism. Focusing on the senior executive change, we select the data of the family listed companies to empirically analyze the influence of limited altruism on the family founders’ decision-makings on changing senior executives and the way to reflect the changes. Our study finds the following results. (1) In the case of poor corporate performances, whether the senior executives can remain the position mainly depends on whether they have a kinship with the family business founders. If it is the case, the possibility for them to be dismissed during the term may fall. (2) Even if the senior executives have a kinship with the founders of the enterprise, the performance decline may still raise the possibility for them to be dismissed again after renewing the term of office. (3) Although the family business founders care about emotions and kinship, they may still follow the principle of capability first when making the decision on succession. As a result, the family members with stronger ability to operate the business are often appointed ultimately. Our study in this paper shows that the family members have obvious limited altruism in the enterprises’ personnel arrangement, and the assumption of limited altruism explains the organizational decision-making behaviors in family businesses more effectively, which is relative to altruism.

Valuation of top executives’ human capital: evidence from unexpected top executives’ death

LUO Jinhui;LI Xue;HUANG Zeyue

China Industrial Economics,2016,No. 05

【Abstract】 The premise for corporate boards making out incentive-compatible executive compensation contracts is to properly value executives’ human capital. However, most existing evaluation methods put forward by previous studies rest on the stage of theoretical discussion and are lack of practical operability, and thus dramatically hamper the actual application of human capital theory in firms. Breaking through constraints of the assets valuation model in financial accounting, this study takes advantage of events of unexpected top executives’ death in listed companies, and takes the market reaction of investors to estimate the opportunity cost for the company involved upon losing a top executive, that is, the value of the top executive’s human capital, and further investigates the heterogeneous characteristics of executives’ human capital value. Our results show that: ① During the time window [−1, 3] of the events of top executives’ unexpected death, the stock price of focal firms drops by about 1.32% on average, amounting to about CNY 117.62 million loss in focal firms’ market value, which highlights the value of top executives’ human capital to focal firms. ② The more power top executives possess, the more negative the market reaction brought by their unexpected death is, the more damage caused to the market value of the company involved, demonstrating that top executives’ human capital value differs based on how much power they own. ③ After distinguishing the nature of property rights of companies involved, we find that there is no difference in the market reaction to unexpected top executives’ death between private and state-owned firms, which suggests that the human capital of executives are equally important to both kinds of firms. Our findings can not only deepen our understanding of top executives’ human capital value, but also provide important practical implications for executive compensation policy.

Do non-CEO executives care more about the amount of pay or pay inequity?

ZHANG Xingliang;XIA Chengcai

China Industrial Economics,2016,No. 09

【Abstract】 Based on trust theory and from a perspective of the pay gap, this paper measures the equity and the relative amount of non-CEO executives’ pay by horizontal pay gap and vertical pay gap, and studies whether non-CEO executives worry about the amount of pay or inequity of remuneration. The study finds that the horizontal pay gap has significant positive correlation with turnover of non-CEO executives, however, the vertical pay gap does not significantly enhance the probability of turnover, showing that non-CEO executives care about the equity rather than the amount. But in different situations, the reactions and their extent of non-CEO executives may be different. When external equity of pay is higher, the non-CEO executives care more about the equity than the amount; otherwise, they care more about the amount than the equity. Compared with the non-CEO executives of non-state-owned enterprises, those of state-owned enterprises care more about inequity. The following mechanism analysis shows that when the horizontal pay gap is wider, the enterprise performance is poorer and non-CEO executives’ term of office is shorter, which illustrates the lower the trust between non-CEO executives, the higher the possibility of turnover. However, the vertical pay gap neither causes poorer enterprise performance nor shortens non-CEO executives’ term of office, which further proves that non-CEO executives worry about inequity rather than the amount. Influenced by the absolute obedience to authorities in Confucianism, vertical pay gap can hardly result in the distrust on CEO of non-CEO executives, and therefore, they will not resign. Additionally, that the phenomenon mentioned is increasingly remarkable with the enhancement of CEO’s authority illustrates that the more authoritative the CEO is, the less the non-CEO executives care about the amount of pay. This paper not only inspires the design of more effective executive remuneration mechanism, but also enriches the theory of pay gap.

Does CEO deferred compensation moderate bank risk taking: evidence from the loan asset allocation of Chinese commercial banks

HE Jing

Finance & Trade Economics,2016,Vol 37,No. 11

【Abstract】 Deferred bank executive compensation has become Chinese regulator’s important measure to reduce financial risk after the financial crisis. This paper focuses on evaluating the effect of CEO deferred compensation on bank risk taking based on the loan asset allocation of Chinese commercial banks. Taking the Commercial Banks Robust Compensation Regulatory Guidelines issued by CBRC in 2010 as an experiment shock, this paper uses the difference in difference-propensity score matching (PSM-DID) approach, the non-observed-effect panel data model (both fixed effect model and GMM) and finds a negative relationship between CEO deferred compensation and bank risk taking, as reflected in the more risky asset allocation is, such as the higher loan ratio is, the higher corporate loan ratio and credit loan ratio are. Furthermore, this paper also investigates how the level of CEO deferred compensation influence bank risk taking. These findings have several policy implications on the reform of banks’ executive compensation.

Policy effect of executive deferred compensation on bank risk undertaking: PSM-DID analysis from the perspective of bank earnings management

HE Jing

China Industrial Economics,2016,No. 11

【Abstract】 Bank executive deferred compensation has become an important measure for Chinese regulators to reduce financial risk after the 2008 international financial crisis. Theoretically, this policy will reduce banks’ earnings volatility and their incentive of earnings management via loan loss provision (LLP). However, taking the Supervisory Guidelines on Sound Compensation in Commercial Banks issued by CBRC in 2010 as an experiment shock and using the Propensity Score Matching-Difference in Difference (PSM-DID) approach, this paper found that CEO deferred compensation reduces banks’ earnings volatility but simultaneously strengthens their earning management incentive. Ulteriorly testing the dynamic marginal effect, this paper found that banks’ earning management via LLP is especially significant in the third year after CEO compensation deferred paid. This is because that the deferred period of CEO compensation is only three years, in order to get more robust compensation, CEO has stronger incentive and ability to manipulate banks’ earnings. These findings have several policy implications on the reform of banks’ executive deferred compensation.

Unbearable cost: analysis of the economic consequences of senior executives’ divorces

XU Liping;LAI Dandan;Xinyu

Management World,2015,No. 05

【Abstract】 During recent years, due to the close attention from the media, divorces of senior executives have become public events with social influence. This article researches 13 listed companies in which there had been divorced senior executives by the end of 2014, and conducts an in-depth analysis of the influence of senior executives’ divorces on corporate governance, share price, corporate performance and so on. We get the following findings. (1) Divorces of senior executives could directly reduce the ownership concentration of a company, change the rankings of shareholders, and further affect the divorced executives’ status and positions in the company, which may cause changes in the board of directors and loss of big customers. (2) The market tends to have a negative short-term response to senior executives’ divorces. On the first day after the divorce is known to the market, the average abnormal return is −0.75%, and then the bad news will be gradually absorbed by the market. (3) Divorces of senior executives have a significant impact on corporate performance. After the divorces, the profitability and estimated stock value of the company decline. Besides, the divorces could also lead to increased volatility as well as reduced capital expenditure and debt ratio. (4)Economic consequences of senior executives’ divorces vary in accordance with the characteristics and divorce arrangements of these senior executives. Divorces of female senior executives and the consequent equal division of shares usually bring higher risk and uncertainty, and divorce of a principal executive or the largest shareholder could trigger even more severe economic consequences. Meanwhile, signing voting rights entrustment agreements can partly reduce the risk and uncertainty brought by senior executives’ divorces.

Influence of political promotion of top managers in state-owned enterprises on the mergers and acquisitions of the enterprises: an empirical study based on the theory of pressure for corporate growth

CHEN Shihua;LU Changchong;JIANG Guangsheng;WANG Yaru

Management World,2015,No. 09

【Abstract】 The pressure for corporate growth is faced by all top managers, while for those top managers in state-owned enterprises (SOEs) of China who are “quasi-officials” in nature, this pressure means something completely different: since SOEs bear a lot of policy burdens, “corporate growth speed” has replaced “corporate performance” (i.e. the “scale-oriented” development model commonly adopted by SOEs) which contains a lot of “noises” and become an important criterion for the political promotion of top managers in SOEs. This means that the pressure for corporate growth faced by top managers with different political promotion possibilities varies. Compared with top managers who are less likely to achieve political promotion, those who are more likely to achieve political promotion are under relatively greater pressure for corporate growth. Merger and acquisition (M&A), as one of the important ways to realize rapid growth of enterprises, naturally becomes the best choice for those top managers who are pursuing political promotion. Therefore, this study explores the influence of political promotion of top managers in SOEs on the M&A behaviors of the enterprises based on the theory of pressure for corporate growth. According to the M&A data of listed SOEs during 2004–2013, this study finds that compared with SOEs whose top managers have a low possibility of political promotion, SOEs whose top managers have a high possibility of political promotion are more likely to choose M&A for corporate growth, and tend to pay higher premiums in M&A transactions and face worse long-term M&A performance. Nevertheless, the short-term M&A performance of the two types of SOEs is not significantly different. In particular, for enterprises whose endogenous growth speed is slower (especially when such speed is viewed in connection with the enterprises’ history), namely that the top managers are under greater endogenous pressure for growth, the political promotion of top managers will have stronger influence on the above-mentioned M&A behaviors (i.e. choice of M&A for growth, payment for M&A transactions and M&A performance).

Regulatory independence, marketization process and the effectiveness of promotion mechanism of SOE senior managers: a study based on the data on position transfer of SOE senior managers during 2003 to 2012

ZHANG Linlin;LIU Feng;CAI Guilong

Management World,2015,No. 10

【Abstract】 The position promotion mechanism is an important institutional arrangement in incentive systems for senior managers of State-Owned Enterprises (SOEs). Its implementation impacts directly on the effectiveness of incentives. In this study, we collect the data on the whereabouts, promotion and demotion of the chairmen, general managers and party secretaries of central and local SOEs after their leavings during 2003 to 2012, and firstly investigate the implementation of the position promotion and evaluation mechanism for SOE senior managers and the preconditions of its effective implementation based on the performance evaluation rules of various levels of State-owned Assets Supervision and Administration Commission (SASAC) on SOEs. We find that the promotion of senior managers of central SOEs relies on their performance and personal abilities. In contrast, under the constraint of political tournament, the promotion of senior managers of SOEs at provincial, prefectural and county levels depends on non-performance political connections or policy burden takings. The promotion evaluation mechanism is implemented differently in central and local SOEs, that is, regulatory independence affects the effectiveness of the promotion mechanism. In addition, compared with the less market-oriented middle and western regions, the promotion mechanism for SOE senior managers in the eastern region of China is more effectively implemented.

Can elite governance of senior executives improve performance: based on the adjustment effect of social connections

ZHANG Xiangjian;XU Jin;XU Longbing

Economic Research Journal,2015,Vol 50,No. 03

【Abstract】 In an era of elite governance, CEO power and social solidarity have increasingly become the inner core and extrinsic aids that determine business efficiency. An issue worth studying is: what effect would two different factors generate on business performance when they intersect each other? The article analyzes the effect of CEO power and social solidarity on business performance, focusing mainly on the moderating effect of social solidarity on CEO power and business performance and its path. The research discovers that CEO power can improve business performance through promoting the ability of resource allocation and innovation; there is an inverted U-shaped relationship between CEO social solidarity and business performance owing to the collective promoting and damaging effects brought by the social solidarity; social solidarity has an inverted U-shaped moderating effect on CEO power and business performance which is mainly realized through the investment expansion effect (resource aggregation and synergy) and passivation effect (solidarity inertia and rent-seeking) caused by Social Solidarity. The research in this article discovers the micro-effect mechanism of CEO power and social solidarity on business performance and is significant in guiding businesses to promote operation management and resource allocation ability.

Local political power transition and reconstruction of government-business relations: evidence from local officials’ turnover and executives’ changes

PAN Yue;NING Bo;XIAO Jinli

China Industrial Economics,2015,No. 06

【Abstract】 The transfer of local officials usually reshuffles the relationship between government and enterprises. Choosing the listed SOEs in China’s stock markets of Shenzhen and Shanghai during 2006 and 2012 as a study sample, we selected the reconstruction of government-business relations as the new angle of view and empirically studied the impact of local officials’ turnover on SOE executives’ abnormal changes, and we analyzed this influence in detail from the dimensions of industries and the last job locations of the new officials. The result showed that the probability of executives’ changes would increase after local officials’ turnover for those SOEs that were directed controlled by municipal people’s government. By further testing, we found that this influence only existed in the real estate industry and the manufacturing industry, and new officials came from another municipality showed lower influence on SOE executives’ changes compared to those new officials from local political system. After a further examination, we found a decreasing market performance in manufacture firms while an increasing market performance in real estate firms after executives’ changes caused by political turnover. Our study not only enriches the research on political uncertainty and corporate governance, but also offers an empirical support to understand how political power intervene in market operation, and provides an new reference to political decision-makers to understand the relationship between government and enterprises, and then helps them to introduce some relevant laws or regulations.

Match of top managers’ style and corporate strategic decisions: from the perspective of coordination between the industry life cycle and the corporate capability life cycle

LIU Gang;YU Xiaodong

China Industrial Economics,2015,No. 10

【Abstract】 Does top manager of a specific style prefer a specific style of strategy? Why are there different outcomes at different stages of time when one top manager determines the same strategy? Why is there significantly different performance when the same strategy is executed in different industries? Existing research cannot explain the above phenomena convincingly. Accordingly, based on the upper echelons theory, it is hypothesized there is corresponding matching relationship between top manager’s style and his corporate strategic preference, by employing theory of five leadership styles and strategic decision classification put forward by Miles and Snow. Referring to contingency theory, this paper introduces two contingency factors, namely industry life cycle and corporate capability life cycle, into the analysis of the corresponding matching relationship between top manager styles and corporate strategic decisions from dynamic perspective and demonstrates the above hypothesis that different styles of top managers have different preferences to corporate strategy. Specifically, tiger-style leaders prefer aggressive strategy, owl-style leaders prefer conservative strategy, and peacock-style and koala-style leaders prefer analytical strategies. Based on the above conclusion, the adjusting role of industry life cycle in the matching relationship between top manager styles and corporate strategic decisions is verified, then the correspondingly matching matrix of top manager styles and corporate strategic decisions is put forward, and good coordination between the industry life cycle and the corporate capability life cycle is attached great importance to.

Firm innovation and executive pay-performance sensitivity : empirical evidence from listed state-owned enterprises in China

JIANG Wei;YAO Wentao

Business Management Journal,2015,Vol 37,No. 05

【Abstract】 The paper takes the number of patents applied by firms as the proxy variable of innovative activities, empirically testing the impact of firm innovation on executive pay-performance sensitivity in Chinese state-owned enterprises (SOEs). The results in this paper show that, firm innovation leads to the decrease of the executive pay–performance sensitivity, but this relation only exists in high-technology SOEs, not in non-high-technology SOEs. Compared with central-controlled high-technology SOEs, our further evidence proves that the negative relation between firm innovation and executive pay-performance sensitivity is stronger in local high-technology SOEs. This paper not only enriches the reference capacity on the relation between firm innovation and executive compensation both in China and abroad, but also provides insight on the practice of designing managerial compensation contract on firm innovation.

Second lending behavior and managements with bank background of Chinese listed companies

WANG Fan;FENG Lili

Financial Economics Research,2015,Vol 30,No. 01

【Abstract】 From the perspective of the role of managements with bank background for bank credit and their engagement in private lending, this study explores the flow of bank credit by listed companies to private lending market. The results indicate that corporate managements with bank background are more likely get bank credit, even in the period of monetary tightening still have the ability to get credit. Further research finds that companies with managements from the banking business are more likely to engage in private lending, even in the tight monetary period as well. This is mainly due to the fact that managements with bank background can help companies access to credit in the period of monetary tightening and invest these funds to the private lending market with higher rate of return. In addition, through the classification of management, it is found that the likelihood of Type 2 business to access to credit is less than Type 1, and the possibility of engaging in private lending is also less than Type 1.

Product market competition, executive incentives and corporate innovation: empirical evidence from listed Chinese companies

HE Yurun;LIN Huiting,;WANG Maolin

Finance & Trade Economics,2015,No. 02

【Abstract】 The mechanism of product market competition on innovation of enterprises has always been a controversial topic in industrial organization. This paper is different from previous researches, and we examine their relationship in different nature of property and select data of A-share non-financial listed companies in China from 2007 to 2012. We find that product market competition has significant and positive effect on corporate innovation from “inter-industry competition” and “competition within industries” dimensions, but the effect is weaker in state-owned enterprises (SOEs). In addition, product market competition can improve more innovation in enterprises which have higher levels of managerial compensation and stock-based incentives. The conclusion shows that product market competition can play an important and active role in the innovation of Chinese listed companies, but the property of SOEs is not conducive to the function of competition. Meanwhile, if enterprises improve executive incentives, it is more advantageous for enterprises to promote innovation in the fierce market environment. Our conclusion is of great importance for understanding the decision-making mechanism of Chinese corporate innovation in economic transition period and promoting the construction of an innovative country.

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