Internal Promotion And External Recruitment During Economic Development: Theory, Cases And Implication From China

This thesis tries to answer three questions. (1) Why external recruitment can be viewed as a phenomenon during economic development under asymmetric information? (2) Why the classical model by William Chan can not explain external recruitment of managers as a phenomenon during economic development? (3) Why interaction between people in internal promotion and external recruitment is a procedure to enhance enterprise and economic development?Existing theories concerning internal promotion and external recruitment are mainly static and equilibrium ones as CHAN model. The viewpoint in this thesis is that external recruitment of managers is a persistent phenomenon during economic development because of asymmetric information in the manager market. External recruitment is a procedure for enterprises to discover information of managers' ability. Enterprises can earn profits taking advantage of their private information to develop themselves.Four propositions are set up in this thesis:1. There is risk in external recruitment because of the asymmetric information in the market. Sometimes, external recruitment deteriorates enterprises' performances rather than improves them.2. Generally speaking, there are differences in ability between insiders and outsiders, so the efficiency of insiders can be improved by external recruitment through the change in organizational structure and thoughts.3. All three parties benefit from external recruitment. Enterprises gain more profits, while recruited managers and insiders get higher income.4. When asymmetric information becomes symmetric, the recruited manager will get higher income no matter he leaves or stays in the enterprises he serves. Competition among enterprises will raise the income of managers to their marginal productivity.This thesis is composed of 8 chapters. Chapter 1 is the introduction. Chapters 2 to 4 are literature survey. The 2nd chapter surveys the general theories of promotion and discusses the relation between promotion, resource allocation and incentive. The 3rd chapter focuses on external recruitment of top managers. Chapter 4 studies the classical model about internal promotion and external recruitment,CHAN model. The 5th chapter is our theory about external recruitment during economic development based on the experience of China. Chapters 6 and 7 are the case study of Taiyang Company that supports the propositions of this thesis. The last chapter concludes and discusses direction of future studies.