Research On The Impact Of CEO Tenure On Corporate Diversification

In recent years,diversification has become an important strategy for the expansion of local enterprises in China.However,once the CEO as a manager has a strong private interest motivation,he may make short-term diversification decisions and crowd out R& D investment related to the core business of the enterprise.In the long run,it is not conducive to the formation of the core competitiveness of the enterprise and ultimately harm the interests of the enterprise.According to the high-echelon theory,CEO as the core manager of the enterprise,its tenure as an important demographic characteristics,not only represents the cognitive basis and other psychological factors,but also represents the ability to accumulate decision-making power,which will lead to different strategic decision-making motivation and executive ability of CEO,and then affect the overall development and strategic choice of enterprises.Therefore,the study of CEO tenure on corporate diversification is of great significance.This paper reviews the literature on CEO tenure,diversification and corporate performance,deduces the mechanism of CEO tenure on corporate diversification based on the principal-agent theory,the high echelons theory,and the bounded rationality hypothesis,and verifies it with the samples of non-financial listed companies in Shanghai and Shenzhen from 2013 to 2019.The study finds that :(1)The longer the CEO ’ s existing term is and the shorter the expected term is,the more likely it is to generate opportunistic behavior and bring more diversification,especially unrelated diversification.(2)CEO shareholding ratio has a positive strengthening effect on the relationship between CEO tenure and corporate diversification;the proportion of institutional investors has a negative weakening effect on the relationship between CEO tenure and corporate diversification.(3)The good internal decision-making management mechanism of state-owned enterprises,including " triple big " system and " off-duty audit," is conducive to supervising CEO opportunism behavior and inhibiting the diversification tendency under the influence of CEO tenure.(4)The external supervision mechanism including analysts and auditors also has a supervisory role,inhibiting the diversification tendency under the influence of CEO tenure.In addition,the diversification of listed companies in China has dispelled the enthusiasm of enterprise innovation to some extent,which is not conducive to the improvement of profitability and is difficult to obtain long-term market recognition.Based on the above research results,this paper argues that China ’ s listed companies should pay attention to the impact of CEO tenure on corporate strategic decision-making,with an inclusive and prudent attitude,and objectively evaluate the rationality and applicability of its diversified decision-making;secondly,it is necessary to establish a long-term evaluation mechanism,increase the proportion of CEO longterm performance evaluation,link CEO compensation level with long-term benefits of enterprises,and focus on key indicators such as R & D investment in core business and capital turnover.Again,we should improve the decision-making accountability mechanism,strict implementation of CEO long-term accountability system;finally,it is necessary to continuously improve the internal and external governance structures,achieve power balance,play a good role in internal governance of institutional investors and external supervision of analysts and auditors,and reduce the decision-making risk caused by excessive CEO power and excessive private interest motivation.