Political Connections, Investment Efficiency And Executives Replacement

With the world economy developing rapidly, competition between companies is more and more fierce. In order to be able to survive the competition and develop, more researches focus on factors which affect enterprise performance. China’s economy is in the process of transition in the development. Laws and regulations are not complete, which presses China’s enterprises in processes of development to establish connections with the government. At the same time, since the institutional environment is not sound, the exercise of the power of the government lacks effective supervision and restriction. As a result, the role of government in business is magnified, and rent-seeking behavior is widespread. Many companies tend to choose to establish connections with the government, namely, to establish a political association., In recent years, political association is the focus of research among many factors affecting enterprise performance. On the other hand, talent can not be ignored for a company. Especially executives as elite talents, have profound significance in the development of enterprises. The capability of an enterprise determines the enterprise’s prospects of development. Due to the separation of ownership and management right, executives are responsible for the company’s operating performance. Owners of a company have the right to replace executives with poor business performance to improve the investment efficiency of enterprises. In this context, this paper researches the relationship among political association, executives replacement and investment efficiency using the data of state-owned listed companies during 2008-2010 as the sample.Results of the empirical study are as follows.(1) Excessive investment of state-owned enterprises is more serious than enterprises without political association.(2) Overall, the probability of executives being replaced for the reason of low investment efficiency is low.(3) Political correlation significantly reduces negative relationship between executive replacement and investment efficiency.(4) When the system environment factor is added, there is a negative correlation between executive replacement and investment efficiency when the institutional environment is good. The results of this paper provide basis to further understand the economic consequences of executive replacement in a state-owned enterprise, and enlighten the corporate governance and the appointment of executives in state-owned enterprises.