The Empirical Study On The Influence Of Executive Tenure On Corporate Performance

In recent years, how the top executives influence the corporate strategic choices and corporate performance have caught the attention of many scholars. Based on the upper echelons theory, scholars have gradually formed a relatively complete theoretical system, meanwhile, through the relevant empirical analysis, they got many meaningful results which let us have a thorough understanding about the relationship between the executives and corporate performance. Generally, the corporates are susceptible to the actions of top executives, but that executives are boundedly rational, scholars have found that corporates become reflections of their top executives(Hambrick and Mason, 1984). And some researches have focused on the top executives’ demographical characteristics, its influence on the corporate performance having been tested. Studies shows, for example, that CEO personalities and functional backgrounds predict the strategic actions and orientations(Gupta and Govindarajan, 1984). With the development of China’s market economy, many corporates have benefited from the policies of the government, and many corporates are founded. But the rising of the corporates means the intense market competition, which challenges the top executives’ management. At this point, under the condition of China’s market economy, the research on the relationship between top executives and corporate performance becomes imperative. Although China scholars have made some studies on the relationship between top executives and corporate performance, which are bounded by the region or the industry. Rarely have the studies been made on the corporates listed on GEM(Growth Enterprise Market), the relationship of top executives and corporate performance of which is yet an unsolved mystery. Compared to corporates listed on Main Board, corporates listed on China’s GEM have their own features. Unquestionably, those features could put corporates in an awkward situation, which brings challenges to the top executives’ management. In the meantime, the demission of corporates’ top managers is also very popular, those can impact corporates’ operation and its performance very much. With those going on, this paper explores the relationship of executive tenure and corporate performance and how they influence each other.This paper reviews the previous studies at home and abroad, and find the relationship between executive’s tenure and corporate performance is different in markets, countries and industries. Generally, there exists two types of relationship: direct and indirect. Taking the direct relationship for example, there exists two trends: linear and non-linear, positive or negative. These studies do not arrive at the same conclusion. Theoretically, the inverted Ushaped relationship may conforms with people’s understanding about life circle and, hypothetically, many scholars would assume the relationship between executive’s tenure and corporate performance is inverted U-shaped before they do empirical analysis. This paper sorts the previous studies and explores the particularity of corporates listed on China’s GEM and find the highly dynamic environment, high-growth, high proportion of main business and high concentration of ownership are their particular features, which suggest the differences of their operation and performance. Based on Hambrick’s(1991) study on the seasons of a CEO’s tenure, the inverted-U relationship between executives’ tenure and corporate performance may generally occur in the related studies, but this type is not perfect, the differences of different markets have to be considered. Combined the previews studies results with the particularity of corporates listed on China’s GEM, this paper assumes the relationship between executive tenure and corporate performance abide to the classical inverted U-shaped relationship, and through building the model, this paper offers some statistical analysis, correlation analysis and regression analysis, and, in the end, comes to some results that conform with the particularity of corporates listed on China’s GEM. But this paper is not perfect, insufficient in collecting data, modelling and setting variables. I believe the existing model and analysis may do some help for us to understand and predict the market, however, to get more fully and deeply understanding, we still need some more studies in the future.The study result shows: the executive tenure of corporates listed on China’s GEM have a significant influence on the corporate performance. But the statistical analysis results and regression results did no support the predicted inverted U-shaped relationship between executive tenure and corporates performance, instead, those executives were at their best when they first took the office and then steadily worsened. This results agree with Henderson, Miller and Hambrick’(2006) research results: for the computer industry with high dynamic environment, corporate performance steadily declined throughout an executive tenure. At the same time, this paper also verifies that corporate performance in the last year within an executive tenure is significantly lower than those in the other years.