Relational Chairman And Corporate Innovation

The historical practice of economic development tells us that only constant innovation can promote the sustainable and healthy development of the economy.In this context,only by insisting on innovation and development and implementing innovation driven development strategy can we accelerate the formation of a new way of economic development,promote the adjustment of China's industrial structure and the long-term sustainable growth of the economy.As the core of the national innovation system,how to promote enterprise innovation to drive the sustainable development of the economy has become a major and urgent task to be studied and solved in China.In the current corporate governance of our country,the authority of the executive manager is not the same as the western chief executive officer(CEO).The chairman often has greater power than the executive manager.The source of the chairman will undoubtedly have a great influence on the decision of the enterprise management.Compared with the chairman of the "meritocracy" appointed by the marketization mechanism,the chairman appointed by the group shareholder may belong to the category of "cronyism".Chinese society has always attached great importance to "human relationship",which has profound influence on corporate governance,and the relational chairman is ubiquitous in China.In the past,most scholars have discussed the phenomenon of "cronyism" from the internal level of the company,and the phenomenon of "cronyism" at the group level is mainly focused on the impact on corporate governance and financial decisions when the actual controller of the family enterprises appoint family members to serve as the senior executives of member company and appoint the "friends" with social connections to serve as the senior executives of branch company.However,from the group level,in addition to the above two kinds of "cronyism" phenomenon,there is also a general phenomenon of "cronyism" that the board of shareholders of an enterprise group is appointed as the chairman of the member company,but few scholars have studied it.This paper,using data of listed firms from 2005 to 2014,examines the influence of relational chairman on the innovation of member companies.We find that the firms with relational chairman are significantly less innovative than those without such relationship,which becomes more pronounced in the state-owned firms,especially those with poor institutions.This results support the "favoritism effect" that relational chairman will favor his firm and allocate more resources to it,which will weaken the incentives of corporate innovation.The results of this paper remain unchanged after the Heckman test which solve the endogenous problems that may exist in relational chairman and the other series of robustness tests.Further,we examine the conduction mechanism of the "favoritism effect" of relational chairman and find that:(1)In the state-owned enterprises,the relational chairman has promoted the investment of the member companies with less investment opportunities,but it has no significant influence on the investment of the members with more investment opportunities.This suggests that in a state-owned enterprise,the relationship chairman favors the member companies,allocating more direct resources to the member companies with less investment opportunities.(2)Compared with other member companies,the members of the relational chairman have more intra-group related transactions,especially the abnormal related transactions within the group.This shows that the relational chairman favors the member companies and allocates more channel resources to them.The above empirical results verify the conduction mechanism of the "favoritism effect" of the relational chairman.The research shows that in state-owned enterprises,the chairman of "cronyism" has"favoritism effect",which will reduce the resource allocation efficiency of enterprise groups,and thus hinder enterprise innovation.Based on this,the policy suggestion proposed in this paper is that the chairman of the state-owned enterprise should be selected based on the"meritocracy" through the market,and avoid the appointment system of "cronyism",in order to improve the efficiency of the resource allocation of state-owned enterprises,enhance the innovation power and incentive of the state-owned enterprises,and finally promote the development of state-owned enterprises and the sustained and rapid growth of China's economy.