An Investigation About The Impact Of CEO Entrenchment On The Effectiveness Of The Board

The research on CEO turnover started in the 1960s.Under the analytical framework of the incomplete contracts,the corporate governance researchers conducted a large amount of extensive research on CEO turnover in listed companies in industrialized countries based on the traditional principle-agency theory and early corporate governance theory.However,the probability of CEO change in China's listed companies is lower than the probability of CEO change in the main Western literature,showing that the probability of the CEOs of listed companies in China is high.From the existing literature,it is not clear and consistent about these issues.The answer,and the exploration of this issue in this paper will be helpful to discover CEO changes,how the post sag effect affects the board's supervision mechanism and effectiveness,and thus affect the company's internal governance mechanism and refine the specific path and internal mechanism to enhance the company's future performance.The theoretical study of the change of corporate CEOs in market countries affecting micro-enterprise behavior deserves further research and discussionBased on the reasons listed above,the paper,according to China's unique institutional background,the CEO changes as the proxy variable of the corporate governance mechanism.Through the combing of the factors affecting the CEO change,the author deeply analyzes whether the existence of the CEO position gap affects the change(or whether the adjustment effect is Existence),to explore its impact on the effectiveness of the board of directors and the effectiveness of corporate governance.At the same time,the PSM method is used for pairing,and the impact of the company's performance changes,the characteristics of different final controllers and different backgrounds on the company's performance fluctuations is empirically tested to examine the impact of CEO turnover on the company's future performance fluctuations in different situations.This article findsFirst,there is a significant negative correlation between company performance and CEO change,and this negative correlation is significant only in the loss-making companies,the private companies,and the private loss-making companies,indicating that the effectiveness of the internal governance mechanism is mainly reflected in the loss companies and private companiesSecond,some personality characteristics of CEO also affect the effectiveness of board governance:a.There is a significant negative correlation between CEO turnover and its political background,that is,a CEO with a political background is less likely to be changed than a CEO without a political background.However,it is only significant in the sample group of private companies and the sample group of private loss-making companies,because improving the company's performance when the company is at a loss is the first issue that the company is currently considering.Even if the CEO has a political background that can bring benefits to the company,When the performance is not good,it needs to be replaced.b.When the positions of CEO and the chairperson of the board are jointly held by the same individual,CEO's power in the company can be greatly enhanced "which helps him form a job gap,then to reduce the possibility of forcing a CEO with poor performance and significantly to weaken the board's effective supervision of the CEO.But it is only significant in the profit sample,the SOE sample and the SOE profit sample group.c.CEO's part-time job has significantly affected the negative correlation between the company's previous performance and CEO change,indicating that the CEO's part-time job helps him form a management gap and protects him not to be punished with poor performance,but the influence above was only verified in the profit sample,the SOE sample and the profit sample group of SOE.d.The growth of CEO's tenure can broaden his social network and increase his social capital.It forms a power circle within the company to resist external pressure,forming a management entrenchment,thus reducing the probability of being forced to leave.It also passed the significant verification in the profit sample,the private sample,the profit sample of SOE and the profit sample group of the private enterpriseThird,in terms of other factors affecting CEO turnover,this paper finds that:a.The proportion of independent directors has little to do with CEO turnover,only significant when the company is in a loss state.This study finds that the proportion of independent directors has nothing to do with CEO turnover.The independent opinion of independent directors restricts the effectiveness of independent directors'supervision.b.There is a significant negative correlation between board size and CEO turnover.The smaller the board size,the higher the possibility that the CEO will be forced to leave,c.There is a positive correlation between the number of board meetings and CEO turnover,that is,the more meetings the board meets,the more frequent the CEO changes.d.There is a significant positive correlation between company size and CEO change.The reason is that the larger the company is,the more formal the company is.The stronger the independence of the board is,the better the function is.Therefore the board can better supervise CEO and reduce the occurrence of its stuck position.e.There is a significant negative correlation between CEO age and CEO turnover.Under the condition of reciprocity,the older CEO is less likely to be forced to leave,indicating that CEO age has played a significant defensive effect in the board's decision-making.Fourth,it is impossible to get a conclusion that the CEO change will improve the company's future performance in full sample.However,from the perspective of different situational factors,this paper finds:a.the operating status of company will affect the fluctuation of future performance with CEO turnover.The company's future performance can be improved by changing CEO in loss-making companies,but not valid in profitable companies.b.The equity of companies affects the fluctuation of the company's future performance with CEO turnover.After the CEO turnover,the performance of the SOE increased slightly,and the performance of the private enterprises did not change significantly.In the sample of state-owned loss-making companies,the change of CEO will slightly increase the performance,and the forced replacement of CEO in state-owned profit-making enterprises has not had a significant impact on the company's later performance.Compared with previous study,the innovation of this paper is reflected in the following aspects:First,this study constructs a deflation index for CEO positions in Chinese listed companies that has little direct research on the literature.It links CEO positions with CEO changes,and uses the company's operating performance as a starting point to study the CEO position gap in its change process.The impact provides a new perspective and evidence for understanding CEO turnover behavior,enriching the research literature on the role of CEO positions and the impact of changes on company performance.Although the literature research on executive change involves management defense and CEO power theory,it is not accurate enough.Based on the theory of management defense and CEO power theory,this paper finds the dimension that only affects CEO position change,and depicts few literature studies.The CEO position stipulates the impact mechanism on the relationship between company performance and CEO change.The role of the CEO's stagnation effect will affect the sensitivity of the CEO's change and company performance by affecting the internal governance mechanism of the company,and will affect the effectiveness of the board's functions and affect the healthy and orderly development of the manager's market.Specifically,based on the unique institutional background in China,this study uses CEO change as the proxy variable of corporate governance mechanism.Through the combing of the influencing factors that lead to CEO change,the paper deeply analyzes whether the existence of CEO position gap affects its change,explore its impact on the effectiveness of the board of directors and the effectiveness of corporate governance,and empirical analysis of the impact of CEO changes on the company's future performance changes.Secondly,this paper uses the method of partial index lag phase I and the tendency score matching method(PSM)to verify the relationship between company performance and CEO change,which better avoids endogenousity and makes the research more standardized and rigorous.In the study of the relationship between the company s pre-performance and CEO change,this study used some methods to lag behind the first-stage method to partially avoid endogenous problems.This study adopts the propensity score matching method(PSM)in the empirical analysis of the impact of CEO changes on the company's future performance fluctuations,which better avoids endogenous problems that have less concern in previous studies,and influences the impact of CEO changes on performance from company performance.Separation from the overall change helps to make more accurate judgments and makes the empirical research results of this paper more stable.In addition,unlike other studies,ST and ST*companies are included in the sample,because the focus of this paper is on the change of CEOs caused by poor company performance.Therefore,ST and ST*companies will be retained in the study to reduce the bias of sample selection..Thirdly,based on the research results of domestic senior scholars,this study systematically analyzes the impact of the company's previous performance on CEO changes and the company's future performance fluctuations after the CEO changes,in the "motivation-behavior-results" Under the framework of integrated research,it contributes new perspectives and evidence for CEO change research,systematically expands the research scope of CEO change in theory and evidence,enriches the literature in this field,provides a basis for improving corporate governance mechanism,and is embedded in the institutional background.The outline of the complete causal relationship is not only beneficially expanded on the theoretical level,but also provides empirical evidence for the establishment of relevant agency systems such as evaluation systems for the listed companies in China.Compared with Western countries,China's academic circles started relatively late in the study of corporate executive change.However,in recent years,with the occurrence of a large number of executive incidents,domestic research literature on the relationship between executive change and corporate governance has mushroomed.Seen in various academic journals.Throughout the research results of these executive changes,most of them are carried out from a certain perspective of corporate governance,which is rather fragmented and systematic.So far,systematic research focusing on executive change has only a few documents,and the systematic research literature on executive change and corporate governance is even more scarce.Unusual CEO changes are a major decision for listed companies.Changing the CEO when the company's performance is poor is only the first step in the company's internal governance mechanism,but this does not mean that the company's later performance will be "automatically" improved Therefore,it is necessary to study the economic consequences of the CEO's abnormal changes,especially It is based on the analysis of different situational factors to be more realistic and instructive for the correct choice of CEO change strategy.The limitation of this paper:First,the governance situation of this paper only considers the nature and business status of the company.In the future,the research can deeply explore the influence of institutional environment,internal behavior,resource ability and different enterprise characteristics on the sensitivity relationship between CEO post trench and performance change.Second,this study does not dig deep into the reasons behind the change of CEO but not the significant improvement of company's future performance.In the future,other factors,such as the characteristics of the successor CEO,can be included in the research framework of this article.Third,this article is not detailed enough to measure the CEO's political background and the CEO's part-time work.In the future,more detailed levels and intensity indicators can be used.To understand more fully the political background of the CEO and the impact of the CEO's part-time work on the performance-change sensitivity process and degree of impact.