Abstract
This paper studies relations between top executive turnover and performance, in comparison of state-controlled companies and private companies in China. Although the likelihood of top executive turnover in both types of companies is significantly related to the performance of the company, top executive turnover in private companies reacts more sensitively to negative earnings than state-controlled companies. Moreover, the difference of the improvement in return on assets subsequent to turnover between two types of companies is also found obviously. In private companies substantial improvement in performance occurs after nonroutine turnover in both short and long terms, while there is only small performance improvement in short terms in state-controlled companies. I find that the performance of state-controlled companies deteriorat so rapidly from the second year subsequent to nonroutine turnover that it become similar to pre-turnover performance. On the other hand, the performance of companies is positively related to the de facto ownership in possession of executives. I conclude that state-controlled companies failed in the dismissal and assignment of top executive, while they succeeded by means of de facto privatization. Anyway, de jure privatization is indispensable to the success of the reform of state-controlled companies from now on.
