| In this study we first analyze the change in CEO turnover and performance relationship in Chinese firms. We find that CEO turnover rate in Chinese firms was abnormally high during 1999-2005(0.23 per year) but declined to normal during 2006-2011(0.16 per year), becoming more comparable to US firms’ CEO turnover rate. We find some evidence of abnormal corporate governance and control changes during 2006-2011 related to abnormally high CEO turnover. By employing logit regression and analysis of interaction effects we find that relationship of abnormal stock performance and probability of CEO turnover in Chinese SOEs was positive during 1999-2005 but negative during 2006-2011. Post-turnover abnormal stock returns were also higher during 2006-2011 compared to 1999-2005 for Chinese SOEs. The evidence is consistent with the hypothesis that exposure to stock price changes for the owners of Chinese SOEs has forced them to evaluate the managers for the poor stock performance. By using the industry and market components of stock price as the proxy for the peer performance, we find that Chinese CEOs are not evaluated for the bad performance of the peer firms, supporting relative performance hypothesis for the evaluation of the CEOs. We then check for the monitoring of the Chinese CEOs for the choice of policy decisions. We use Chinese listed firms’ CEO turnover data categorized into endogenous and exogenous turnover samples and find that the managers of the Chinese firms do not show idiosyncratic style. Abnormal policy changes after the endogenous turnovers show that turnover decision is related also to pre-turnover policy changes and intention of the board to take the firm in new direction.
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