Governmental Connection, Social Capital And Top Executives Turnover

There exists common phenomenon that enterprises associate with the government inChina. A large number of studies have pointed out that enterprises keep good communicationwith government can help enterprises protect their property rights, reduce costs, acquire scarceresources and access to social reputation. Top executives play an important role in theconnection between the government and enterprises, and top executives turnover is a key indexunderstanding the variable restraining manager and judging the efficiency of corporategovernance mechanism. Therefore, studies on the relationship between enterprise-governmentconnections and top executives turnover are of great significance for enterprises to improvetheir governance mechanisms and to enhance their value. From the perspective of social capitaltheory, this article discuss that in order to acquire competitive advantage, enterprises activelyseek for governmental connections to accumulate social capital. On this basis, this articlepresents the theoretical assumptions of the governmental connections affecting the corporategovernance mechanisms, and then uses the sample of non-financial listed firms in Shanghai andShenzhen between2000and2008to do empirical analysis. Our studies find that the more socialcapital the top executives have, the less probability that the executives can be demoted. Inaddition, the governmental connection significantly enhances the performance ofnon-state-controlled listed firms, but does not improve the performance of state-controlledlisted firms. The results of this article show that the governmental connections weaken theexecutive supervision of the corporate governance mechanism, constraints and incentive effects.Thus, the traditional agency cost theory is difficult to explain the non-routed turnover of theexecutives of listed firms in China. Only continue to implement the reform of state-ownedenterprises and improve corporate governance mechanisms, to encourage enterprises toaccumulate multi-level social capital, can China’s listed firms fully optimize theircompetitiveness.