Ownership Performance and Executive Turnover组织设计与人力资源清华大学王一江.docx

Ownership Performance and Executive Turnover组织设计与人力资源清华大学王一江.docx

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OwnershipPerformanceandExecutiveTurnover组织设计与人力资源清华大学王一江

Ownership,PerformanceandExecutiveTurnover

WeiChi

SchoolofEconomicsandManagement

TsinghuaUniveresity,and

KansasStateUniversity

YijiangWang

CarlsonSchoolofManagement

UniversityofMinnesota

July2006

Abstract:

Thispaperstudiestheeffectofstateownershiponexecutivejobstability.DataoflistedcompaniesinChinaprovideevidencethatexecutiveturnoverinresponsetoimprovedperformanceissignificantlydifferentincompanieswithstateownershipsharesthaninthosewithout,andincompanieswherethestateisthelargestownerthaninthosewherenonstateis.Understateownership,betterperformanceleadstomorefrequentexecutiveturnovers.Thenegativeeffectofperformanceonexecutivejobstabilityislargerwhenthestatehasalargerownershipshare.Thesefindingssuggestanultimatedisincentiveforstateenterprisemanagers,whichisthat,topromotetheirprivatebenefitratherthanefficiency,politiciansdonotmakeexecutiveappointmentsbasedonperformance.Thesefindingsshiftthefocusfromprevious（fruitful）workonmanager’sagencyproblemtopolitician’sincentiveproblem.Theyhaveimportanttheoreticalandpolicyimplications.

1.Introduction

Whenacompetentexecutiveisdoingagoodjobinmakingprofitforthefirm,isheremploymentatthefirmmorelikelytocontinueordiscontinue?

Inthispaper,weusedataoflistedcompaniesinChinatostudyhowtheanswertothisquestionisaffectedbystateownership,includingitspresence,itsshare,anditsplace（i.e,ifthestateisthelargestowner）inafirm.

Theanswertotheabovequestiononexecutivejobstabilityisnotstraightforwardbecauseitinvolvestwoconsiderationswithlikelyoppositeimplications:

considerationforefficiencyandthatforprivatebenefitthroughcontrol.Althoughinmanycasescontinuedemploymentofaprovencompetentexecutiveisbestforafirm’sfutureperformance,itisnotnecessarilybestfortheprivateinterestofthepartymakingexecutiveappointmentdecisions.Toadvancehisprivatebenefit,thedecisionmakermaywanttoappointaconfidantinsteadtocontrolthefirm.

Afirm’sownershipstructureisoneofthemostimportantfactorsindeterminingwhichoneofthesetwoconsiderationswillprevail.Strongprofitmotivationinnonstatefirms（firmswithprivateinvestorsasowners）suggeststhatthesefirmswilllikelywantaprovencompetentexecutivetostayandcontinuethegoodwork.Incontrast,thedesiretocontrolislikelytoprevailinstate-ownedenterprises（SOEs）wherepoliticiansdecideonexecutiveappointments.Thisissobecause,officiallyandlegally,theresidualbenefitofSOEsmustgotothecitizens.So,althoughincentivecontractstyingcompensationtoperformancearefrequentlyusedtomotivateSOEmanagers,similarcontractsforpoliticianshaveneverbeenusedbecauseitwouldbelegallyandideologicallynotjustifiable.NotbeingabletobenefitfromanSOE’ssuccessthroughexplicitcontracting,self-interestedpoliticianscanonlychoosetobenefitthroughcontrolandmakeexecutiveappointmentdecisionsaccordingly.

Politician’sabilitytocontrolafirmislikelytoincreasewiththeshareofstateownershipandbethestrongestwhenthestateisthedominantshareholder.Furthermore,politician’sdesiretocontrolafirmislikelytogrowwiththefirm’sprofitability,asmoreprofitmeansmoreroomforprivatebenefitobtainablefromthefirm.Combiningtheseobservations,ananswertothequestionraisedatthebeginningofthispaperemerges:

stateownershipislikelytoleadtoanegativerelationshipbetweenperformanceandexecutivejobstability.Inotherwords,inafirmwithsignificantstateownership,morefrequentexecutiveturnoverisexpectedwhenthefirmismoreprofitable.Thisnegativeeffectofperformanceonexecutiveturnoverisstrongerwhenthestateownershipshareislarger.

Aswewillshowinthisstudy,dataoflistedcompaniesinChina’stwostockexchangesprovideconvincingevidenceofanegativeeffectofbetterperformanceonexecutivejobstabilityinfirmswithstateownership.Theeffectisindeedstrongerwhenstate’sownershipshareismoresignificant.

Empiricalstudiesoftheimpactofstateownershiponmanagerialturnoverarerelativelyscarce.Intherelativelysmallliterature,Tam（1999）andTenevandZhang（2002）findthatSOEmanagersarelesslikelytoberemovedforpoorperformance.However,Grovesetal.（1995）andChangandWong（2004）findthatpoorperformancedoesresultinincreasedmanagerialturnoverinSOEs.Clearly,thesestudieshavefocusedonwhathappenstoSOEmanagerswhenthefirmisnotperformingwelltoaddressthequestionofmanagerialdisciplining.

OurworkcomplementspreviousresearchbystudyingwhathappenstoSOEmanagerswhenthefirmisperformingwell.Thisshiftoffocushelpstoaddressalong-timepuzzlenotedbyLaffontandTirole（1993）:

WhycannotSOEsreplicateincentivesusedintheprivatesectorfortheirmanagersandthusbecomeequallyefficient?

Thefindingsofthisstudyemphasizetheimportanceofscrutinizingthebehaviorofpoliticianstosolvethepuzzle.Theysuggestthat,indesigningincentivesinSOEs,thedifficultyisnotsomuchwiththeagent,i.e.,themanager,thanwiththeprincipal,i.e.,thepoliticianwithaneyeonprivatebenefit.Theevidencewefindinthisstudyisconsistentwiththegrabbing-handtheoryofgovernmentasinShleiferandVishny（1994,1999）andFryeandShleifer（1997）,althoughtheevidenceisnotfromadirecttestoftheirtheory.

Paralleltotheliteratureofstateownershipisthatofimplicationsofconcentratedownership.Inthisliterature,ShleiferandVishny（1986）studythepositiveroleoflargeshareholdersinalleviatingthefree-ridingprobleminmonitoringmanagers.Johnsonetal（2000）,however,pointouttheproblemof“tunneling”,i.e.,“thetransferofresourcesoutofacompanytoitscontrollingshareholder”,whichhasadetrimentaleffectonefficiency.Bebchuk（1999）developsa“rent-protection”theorytoexplainlargeshareholder’slockoncontrolforprivatebenefit.Manyauthorshaveempiricallystudiedtheeffectsoflargeshareholders.Ourstudyisalsorelatedtothisliterature.Asalreadyexplained,tostudytheeffectofstateownershiponexecutiveturnoverwhenthefirmisperformingwell,wedoneedtoconsiderandincorporatetheeffectofownershipconcentrationintothestudy.Beforeus,FranksandMeyers（2001）andGortonandSchmid（2000）havestudiedtheeffectofownershipconsideringsimultaneouslybothdimensionsofownership,i.e.,whoownsthefirm（e.g.,bankorotherinstitutionsversusfamily）andhowconcentratedtheownershipis.Toourbestknowledge,ourstudyisthefirsttosimultaneouslyconsiderthesetwodimensionsinthecontextofstateversusnonstateownership.

Ourstudyhasdirectandimportantpolicyimplications.Amongcountriesintransitiontowardsmarket,ChinaadoptedthestrategyofslowprivatizationandfocusedondesigningincentivesforSOEmanagers.EasternEuropeancountries,RussiaandotherformerSovietstates,ontheotherhand,mostlyadoptedthestrategyoffastprivatization.Nowadays,stateownershipstilldominatesinmanyimportantindustriesinChina,suchasenergy,banking,transportationandtelecommunication.Believingthat,withrightincentivesformanagers,SOEscandoaswellasanyothertypesoffirms,manyinChinainsistthattherightstrategyforeconomicreformanddevelopmentisastrongstatesectoralongsidewiththenonstatesector.Byprovidingevidencethatanexecutiveisactuallylesssecureinherjobwhenthefirmisperformingwell,ourworkpointsoutanultimatedisincentiveforSOEexecutiveswhowanttobettersecuretheircurrentjobs.Itpointsoutthelimitationoffocusingonlyonmanagerialincentivesandhighlightsamainmeritofprivatization:

freeingSOEsfromexecutiveappointmentdecisionsmadebythosewhocannotexplicitlybenefitfromthesuccessofthefirms.

Theplanfortherestofthepaperisasfollows.Section2summarizesChina’sexperienceinSOEreformsothatthehistoricalandinstitutionalbackgroundofourstudyisclear.Section3introducestheempiricalmodelsusedinourstudy.Section4describesthedata.Section5presentstheresultsofourstudy.Section6concludesthepaper.

2.StateenterprisereforminChina.

ChinastartedtheefforttoreformSOEsinthelate1970'swheneconomicreformwasstarted.Inthe1980s,theeffortfocusedmainlyonprovidingincentivesforSOEmanagers（seeGrovesetal,1995;andGroves1994）.Inthe1990s,todeepenthereform,agreatereffortismadetorestructuregovernanceinSOEs.OneofthemostimportantmeasuresinthisregardistheenactmentofCompanyLawin1993.TheLawwaslateramendedthreetimes,mostrecentlyin2005.TheCompanyLawgrantsSOEmanagerstherighttorunSOEswithoutgovernmentalinterference.ItalsoencouragestheSOEstocorporatizesothattheycanhaveaformalgovernancestructuresimilartothatinmoderncorporationsinthewest.Sincethen,manySOEs,includingmanyofthelargestandmostimportantones,havebeencorporatizedandlistedinShanghaiorShenzhenStockExchange.Theeffortofcorporatizationovermorethanadecade’stimehasturnedChinaintotheeighthlargeststockmarketintheworldwithmorethan1300listedcompaniesandatotalofissuedcapitalover$90billionbyMay2006.

Thecontinuousreformeffortandmeasuresintroducedinboththe1980sandthe1990sinjectedstrongmomentumintomanySOEs,speedinguptheirgrowth.From1980to2003,thetotalfixedassetsofChina’sstateenterprisesgrewfromRMB345billionyuanto2009b