Political Connection, Financial Scandals And Executive Changes

Studies have found that a series of financial scandals led to the adverse economic consequences for businesses, including the negative market reaction, significant increases in the cost of capital and top management turnover. On the other hand, domestic and foreign scholars have aroused widespread concern on the political connection since it is a common phenomenon in the world in recent years. So, when the company in financial scandals, how the political connection affect the playing of the reputation mechanism? This is the main problem to be answered.This paper choose these companies which occurred financial scandals in A-share listed companies and paired samples from 2002-2009. Through using descriptive statistics, univariate and multiple logistic regression analysis, check how the political connections impact on the top management turnover in these financial scandal companies. Finally I found that:(1) Compared with paired samples, the top management of these financial scandal companies are more likely to change. (2) In these financial scandal companies, political connections background executives more likely to be replaced; (3) In these financial scandal companies, compare with the state-owned enterprises, the top managers associated with a higher probability of changes if they connected to the politics. The results show that, in the Chinese capital market, political connection make the reputation mechanism more effectively, and this may be happened mainly in private enterprises.This paper analyses the economic consequences of the political connection through the reputation mechanism and the top management turnover, which enrich the study on the political connection. Furthermore, this paper take the political connection into the area of corporate governance, and enrich the study on the top management turnover and the efficiency of the corporate governance.