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Corporate Performance, Corporate Control Transfer,and Management Turnover

Author: WangXiang
Tutor: BuDanZuo
School: Southwestern University of Finance and Economics
Course: Financial Management
Keywords: Corporate Performance Corporate Control Transfer Management Turnover
CLC: F275
Type: Master's thesis
Year: 2013
Downloads: 42
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Abstract


Chairman and general manager is the heart of management and their replacement, as a big decision to regulate enterprise will have great influence on development of enterprise. With the rapid development of the capital market, the control market is growing up, and many groups get the management of resources through it to optimize allocation of resources. Frequent management replacement attracts practitioners and academics to concern about its causes. Based on the public disclosure information of listed companies, job transfers, expiration of term of office and resignation is the main reason to replace top managers, control transfer and improve the corporate governance mechanism occupy a small proportion. From the analysis of relevant theory, however, the author find that control market have the incentive and restraint effects on replacement of top managers, and this effect is ultimately caused by the company’s performance. What’s the real reason of top managers’ replacement and if there’s some real reasons hidden behind the listed company public information, so this paper use data provided by listed company in China to explore the reasons from the point of control transfer. The results show that:First of all, the poor performance will lead to control transfer; Second, control transfer will cause executives replacement; Once again, compared with no control transfer occurred companies, the occurrence is more likely to have executives replacement because of poor performance; Finally, job transfers, resignations and the expiration of term of office are the main reasons of the management replacement, and most term of office is less than3years. This paper would like to take this research to help the corporate governance mechanism and market system improved steadily.The structure of this paper is as follows:The first chapter is the introduction, containing the background of this study, the research purpose, significance, and research ideas, and defined the concept of control and senior manager. With the development of capital markets, the role of control market in the corporate governance mechanism is more and more important, we want to give some suggestions by the research of control transfer and performance effected on management replacement to help the corporate governance mechanism and market system improved steadily.The second chapter is a literature review, executives replacement reasons as the basis of this study. The reasons that can lead to management replacement are performance, external governance mechanisms, internal governance mechanisms, and this paper reviewed the relevant literature.The third chapter is theoretical analysis, introduces four theories-contract friction theory, the theory of communication block, theory of motivation and control market theory. Because of modern enterprise system, the separation of ownership and management rights, agency problems arose. The existence of asymmetric information lead moral hazard and adverse selection turned up, shareholders want to achieve capital preservation and appreciation, so they will take some measures to encourage management to work hard, and management wish to get more private benefits may made decisions against the interests of shareholders. The low efficiency of executive management will demonstrate by performance, and effectiveness of control market play a role to replace the inefficient management executives.The fourth chapter is empirical analysis, based on the literature review and theoretical analysis, we propose three hypotheses:first, poor operating results have a positive impact on management replacement, and secondly, control transfer can cause management replacement, finally, poor operating results among the companies whose control has transferred is more likely to cause management to replace.The fifth chapter is empirical test, according to the data of management replacement in2010and the performance of the company as well as control transfer in2009, stata statistical software is used to test the above three hypotheses, the conclusions are as follows:in the full sample and non-state-owned companies, poor operating results has a positive impact on management replacement,while in state-owned companies, this effect is negative; control transfer will lead to the management to be replaced, in either the full sample, the state-owned companies or non-state-owned companies, but the statistics are not significant in both state-owned companies and non-state-owned companies; poor operating results among the companies whose control has transferred is more likely to cause management to replace, and the influence that control transfer has on management replacement is ultimately caused by poor company performance.The sixth chapter is the conclusion, according to the theoretical analysis, the practical analysis and empirical test results above, some comments on management replacement are madeincluding the development of manager market and improvement of the company’s shareholding structure,on this basis the author hopes these will help raise the level of corporate governance.According to the management replacement and its associated empirical analysis in the listed companies of China, the following conclusions are obtained: First, from the information disclosed by listed companies, resignation, job transfer and the expiration of the term of office are the main reasons which lead to management to replace,and the term of office of the management that is less than3years accounts for more than50%, besides.the age of the management who have left the companies are mostly distributed between41and55, and the successor is mainly from the company. Secondly, according to the model regression results, whether the control of the company is transferred depends on the operating performance, but the role among the state-owned companies, the non-state-owned companies as well as the full sample is different, this is because state-owned equity transfer is more restrictive and the government strict much supervision on them. However, to certain extent the result reflects the mechanism of control market, that is the inefficient management will be replaced through the transactions in the control market in order to protect the interests of shareholders, and the control transfer is more likely to occur in companies with poor performance. Thirdly, the test results of model2shows that control transfer will cause the management to be replaced. Here is the standard that if the largest shareholder changes, the control is transferred.Based on the background of the shareholders of listed companies in China, the phenomenon is relatively common that state-owned shares is dominant, and large shareholders usually appointment the management of listed companies to achieve control of the company. Because large shareholders represent different interest groups, when the control of the company is transferred, the new shareholders will use the same method as the original shareholders to appoint management to ensure their own interests. Finally, among the companies whose control is transferred, the worse the performance, the more prone to replace the management. Control market has an impact on the management behavior to form a kind of incentive and restraint to encourage management to work hard, in order to enhance the performance of the company. If the management behavior is inefficient, it will result in poor operating results, then the company’s share price falls, and investors would like to take this opportunity to obtain the control, to integrate the resources, and to replace the original management. This also shows that the influence that control transfer has on management replacement is ultimately caused by poor operating results.The innovation of this paper is as follows:discussing the efficiency of the executive management based on the basic theory, selecting the cross-sectional data, dividing the sample into state-owned companies and non-state-owned companies according to the nature of property rights, so research results are more targeted, and from the description of the present situation of executive replacement, less than3years accounts for more than50%.The lack of this article is as follows:based on different considerations, variable selection, model setup and data processing, the study course of which will vary, so the results of the study may be influenced.

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CLC: > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management
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