Appointment of Politically Connected Top Executives and Subsequent Firm Performance and Corporate Governance: Evidence from China’s Listed SOEs

摘要

This paper investigates the replacement and appointment of top executives in a political economy and their consequences on firm performance and corporate governance. Using data of China's listed state-owned enterprises (SOEs), this paper finds that the state owner is more likely to replace top executives and appoint a politically-connected executive when SOEs encounter economic distress such as poor ROA, earnings loss, high financial risk, or political distress such as regulation violation. Further, it finds that the political top executives improve firm performance following their appointments, initiating modification of internal governance structures and mitigating manager's discretion. Findings imply that the state owner considers political executives effective to improve firm performance and that political executives could serve as a disciplinary or monitoring mechanism in a political economy substituting for external market control, instead of being only a form of bail-out.