International Journal of Economic Behavior and Organization

| Peer-Reviewed |

Political Influence and Cost vs. Benefit of CEO Duality: Evidence from Post-IPO Performance in China

Received: 09 February 2017    Accepted:     Published: 10 February 2017
Views:       Downloads:

Share This Article

Abstract

Investigating the post-IPO performance of Chinese firms, we empirically examine the moderating effect of political influence in the cost vs. benefit analysis of CEO duality (the arrangement for the CEO to chair the board). We find that, on average, post-IPO performance is positively associated with CEO duality. Meanwhile, such a positive association is less pronounced for state-controlled firms, for the firms in regulated industries, and for the firms with politically connected CEOs. Our findings suggest that, the higher is the extent of political influence, the benefit of CEO duality is less likely to outweigh the cost of CEO duality. As for the implication for policy-makers, the evidence also suggests that the proposal asking all listed firms to separate the role of CEO from board chairman may need more careful consideration.

DOI 10.11648/j.ijebo.20170501.11
Published in International Journal of Economic Behavior and Organization (Volume 5, Issue 1, February 2017)
Page(s) 1-7
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

CEO Duality, Political Influence, Stewardship Theory, Agency Cost

References
[1] Aggarwal R, Samwick A. 1999. Executive compensation, strategic competition, and relative performance evaluation: Theory and evidence. Journal of Finance 54 (6): 1999-2043.
[2] Aharony J, Lee CW, Wong TJ. 2000. Financial packaging of IPO firms in China, Journal of Accounting Research 38 (1): 103-126.
[3] Alchian A. 1950. Uncertainty, evolution and economic theory. The Journal of Political Economy 58 (3): 211-221.
[4] Berg SV, Smith SK. 1978. CEO and board chairman: A quantitative study of dual vs. unitary board leadership. Directors & Boards 3 (1): 34-37.
[5] Berl A, Means G. 1932. Modern corporation and private property. Macmillan Co. Press: New York
[6] Boyd BK. 1995. CEO duality and firm performance: A contingency model. Strategic Management Journal 16 (4): 301-312.
[7] Chen Z. H., Guan Y. Y., Ke B. 2009. Does Managerial Stock Option Compensation Increase Shareholder Value in State-Controlled Chinese Firms Listed in Hong Kong? Working Paper, Chinese University of Hong Kong
[8] Christie A., Joyce M., Watts R. 2003. Decentralization of the firm: Theory and evidence. Journal of Corporate Finance 9 (1): 3-36.
[9] Clarke DC. 2003. Corporate governance in China: An overview. China Economic Review 14 (4): 494-507.
[10] Dean T, Brown R. 1995. Pollution regulation as a barrier to new firm entry. Academy of Management Journal 38 (1): 288-303.
[11] Donaldson L. 1990. The ethereal hand: Organizational economics and management theory. Academy of Management Review 15 (3): 369-381.
[12] Donaldson L, Davis J. 1991. Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management 16 (1): 49-65.
[13] Fan J. P., Wong T. J., Zhang T. Y. 2007. Politically connected CEOs, corporate governance, and post-IPO performance of China's newly partially privatized firms. Journal of Financial Economics 84 (2): 330-357.
[14] Fee A, Hadlock C. 2000. Management turnover and product market competition: Empirical evidence from the U. S. newspaper industry. The Journal of Business 73 (2): 205-243.
[15] Finkelstein S, D'Aveni RA. 1994. CEO duality as a double-edged sword: How boards of directors balance entrenchment avoidance & unity of command. Academy of Management Journal 37 (5): 1079-1108.
[16] Firth M, Rui O, Fung P. 2006. Corporate governance and CEO compensation in China. Working Paper.
[17] Giroud X, Mueller H. 2008. Does corporate governance matter in competitive industries? Working Paper, New York University
[18] Griffin J, Mahon J. 1997. Corporate social performance and corporate financial performance debate: Twenty-five years of incomparable research. Business and Society 36 (1): 5-31.
[19] Gu Z. Y., Cao Y, Yang Y. 2010. Prolonged long-term incentives: A re-examination of the guidelines of executive equity ownership. Working Paper, Chinese University of Hong Kong.
[20] Hart O. 1983. Market mechanism as an incentive scheme. Bell Journal of Economics 14 (2): 366-382.
[21] Hovey M, Li L, Naughton A. 2003. The relationship between valuation and ownership of listed firms in China. Corporate Governance: An International Review 11 (2): 112-123.
[22] Jensen M. 1993. Modern industrial revolution, exit, & the failure of internal control systems. Journal of Finance 6 (4): 4-23.
[23] Jensen M, Meckling W. 1976. Theory of the firm: Managerial behavior, agency costs and ownership. Journal of Financial Economics 3 (4): 305-360.
[24] Kole S, Lehn K. 1997. Deregulation and the adaptation of governance structures: The case of the U. S. airline industry. Working Paper, University of Rochester.
[25] Maskin E. Y., Qian Y, Xu C. G. 2000. Incentives, information and organizational form. Review of Economic Studies 67 (2): 359-378.
[26] Masulis R, Wang C, Xie F. 2007. Corporate governance and acquirer returns. Journal of Finance 62 (4): 1851-1889.
[27] Nee V. 1992. Organizational dynamics of market transition: Hybrid forms, property rights, and mixed economy in China. Administrative Science Quarterly 37 (1): 1-27.
[28] Orlitzky MFL, Schmidt, Rynes S. L. 2003. Corporate social and financial performance: A meta-analysis. Organization Studies 24 (3): 403–441.
[29] Peng M. W., Zhang S, Li X. 2007. CEO duality and firm performance during institutional transitions. Management & Organization Review 3 (2): 205-225.
[30] Rechner PL, Dalton DR. 1991. CEO duality and organizational performance: A longitudinal analysis. Strategic Management Journal 12 (2): 155-160.
[31] Schmidt K. 1997. Managerial incentives and product market competition. Review of Economic Studies 64 (2): 191-213.
[32] Shleifer A. 1985. A theory of yardstick competition. Rand Journal of Economics 16 (3): 319-328.
[33] Shleifer A, Vishny R. W. 1986. Large shareholders and corporate control. Journal of Political Economy 94 (3): 461-488.
[34] Shleifer A, Vishny R. W. 1994. Politicians and firms. Quarterly Journal of Economics 109 (4): 995-1025.
[35] Shleifer A, Vishny R. W. 1997. A survey of corporate governance. Journal of Finance 52 (2): 737-783.
[36] Song F, Yuan P, Gao F. 2006. Does large state shareholder affect the governance of Chinese board of directors? Working Paper, Tsinghua University.
[37] Stigler G. 1951. The division of labor is limited by the extent of the market. Journal of Political Economy 59 (3): 185-193.
[38] Stigler G. 1961. The economics of information. Journal of Political Economy 69 (3): 213-225.
[39] Tian J. J., Lau C. M. 2001. Board composition, leadership structure and performance in Chinese shareholding companies. Asia Pacific Journal of Management 18 (2): 245-263.
[40] Wang Q, Wong T. J, Xia L. 2008. State ownership, the institutional environment, and auditor choice: Evidence from China. Journal of Accounting and Economics 46 (1): 112-134.
[41] Wu S, Liu Z, Fan J. 2001. An empirical study of the relationship between non-executive directors and firm performance. China Industrial Economy (in Chinese) 9: 69-76.
[42] Yu D. Z, Gu L. R. 2002. Leadership structure of corporation and performance. China Industrial Economy (in Chinese), 2: 70-78.
[43] Dey A., Engel E., Liu X. 2014. CEO and board chair roles: To split or not to split? Working Paper, University of Chicago.
[44] Frydman C., Jenter D. 2013. CEO compensation. Working Paper, NBER.
Author Information
  • Lee Kong Chian School of Business, Singapore Management University, Fort Canning Park, Singapore

  • Antai School of Economics and Management, Shanghai Jiaotong University, Shanghai, China

  • Faculty of Business, City University of Macau, Macau, China

Cite This Article
  • APA Style

    Heli Wang, Lijun Xia, Veicheng Yu. (2017). Political Influence and Cost vs. Benefit of CEO Duality: Evidence from Post-IPO Performance in China. International Journal of Economic Behavior and Organization, 5(1), 1-7. https://doi.org/10.11648/j.ijebo.20170501.11

    Copy | Download

    ACS Style

    Heli Wang; Lijun Xia; Veicheng Yu. Political Influence and Cost vs. Benefit of CEO Duality: Evidence from Post-IPO Performance in China. Int. J. Econ. Behav. Organ. 2017, 5(1), 1-7. doi: 10.11648/j.ijebo.20170501.11

    Copy | Download

    AMA Style

    Heli Wang, Lijun Xia, Veicheng Yu. Political Influence and Cost vs. Benefit of CEO Duality: Evidence from Post-IPO Performance in China. Int J Econ Behav Organ. 2017;5(1):1-7. doi: 10.11648/j.ijebo.20170501.11

    Copy | Download

  • @article{10.11648/j.ijebo.20170501.11,
      author = {Heli Wang and Lijun Xia and Veicheng Yu},
      title = {Political Influence and Cost vs. Benefit of CEO Duality: Evidence from Post-IPO Performance in China},
      journal = {International Journal of Economic Behavior and Organization},
      volume = {5},
      number = {1},
      pages = {1-7},
      doi = {10.11648/j.ijebo.20170501.11},
      url = {https://doi.org/10.11648/j.ijebo.20170501.11},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.ijebo.20170501.11},
      abstract = {Investigating the post-IPO performance of Chinese firms, we empirically examine the moderating effect of political influence in the cost vs. benefit analysis of CEO duality (the arrangement for the CEO to chair the board). We find that, on average, post-IPO performance is positively associated with CEO duality. Meanwhile, such a positive association is less pronounced for state-controlled firms, for the firms in regulated industries, and for the firms with politically connected CEOs. Our findings suggest that, the higher is the extent of political influence, the benefit of CEO duality is less likely to outweigh the cost of CEO duality. As for the implication for policy-makers, the evidence also suggests that the proposal asking all listed firms to separate the role of CEO from board chairman may need more careful consideration.},
     year = {2017}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - Political Influence and Cost vs. Benefit of CEO Duality: Evidence from Post-IPO Performance in China
    AU  - Heli Wang
    AU  - Lijun Xia
    AU  - Veicheng Yu
    Y1  - 2017/02/10
    PY  - 2017
    N1  - https://doi.org/10.11648/j.ijebo.20170501.11
    DO  - 10.11648/j.ijebo.20170501.11
    T2  - International Journal of Economic Behavior and Organization
    JF  - International Journal of Economic Behavior and Organization
    JO  - International Journal of Economic Behavior and Organization
    SP  - 1
    EP  - 7
    PB  - Science Publishing Group
    SN  - 2328-7616
    UR  - https://doi.org/10.11648/j.ijebo.20170501.11
    AB  - Investigating the post-IPO performance of Chinese firms, we empirically examine the moderating effect of political influence in the cost vs. benefit analysis of CEO duality (the arrangement for the CEO to chair the board). We find that, on average, post-IPO performance is positively associated with CEO duality. Meanwhile, such a positive association is less pronounced for state-controlled firms, for the firms in regulated industries, and for the firms with politically connected CEOs. Our findings suggest that, the higher is the extent of political influence, the benefit of CEO duality is less likely to outweigh the cost of CEO duality. As for the implication for policy-makers, the evidence also suggests that the proposal asking all listed firms to separate the role of CEO from board chairman may need more careful consideration.
    VL  - 5
    IS  - 1
    ER  - 

    Copy | Download

  • Sections