In ‘CEO Turnover in China: the Role of Market-based and Accounting Performance Measures’ Mr. Martin J. Conyon of Lancaster University and Ms. Lerong He of the State University of New York examine how likely Chinese CEOs are to be booted in the event of either poor company or poor stock price performance? In this paper, first published in the European Journal of Finance in 2012, they convincingly provide the answer. Which is? Surprising to many I expect, but very.
The study is confined to only Shanghai and Shenzhen listed companies and only drills into the period 1999~2006 but it confirms what I’ve noticed looking at SOEs for a long time now. There’s a lot more shareholder activism in the China market than may at first appear. It is though more of the quiet-assassin than barbarians-at-the-gate type.
The message for top management at companies where the majority shareholder is China Inc. is clear. If you’re running a poorly performing SOE expect to be moved on. One of many interesting observations in the paper is that the larger the SOE and more independent directors it has the less likely the chances of premature CEO ejection (because they tend to select better managers to begin with?).
While reading this piece I wondered what the ejection rate for CEOs was at US companies these days? According to a 2013 survey by The Conference Board it’s at mult-year lows with the average tenure being 9.7 years. What a difference a bull market makes?
The paper is downloadable at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1084396
Happy Sunday