China's State-owned Enterprise Managers To Choose The Direction Of Reform

After a series of institutional reforms of the Chinese State-owned Enterprise (SOE) for nearly 30 years, such as giving off power and profits, contracted responsibility system, governance structure, the managers have worked more hard and the performance of the SOE has been improved greatly. However, the right of selecting SOE managers is controlled by government. It will lead to corruptibility and bureaucratism. A lot of Chinese researchers have analyzed this problem. Most of them consider the government cannot select good managers and the right of selecting manager should be passed to the board of directors. Nevertheless, can the board of directors select good managers? What are the main factors that determine the efficiency of manager selection? Why cannot the government choose the good managers for SOE? Which factors decide the SOE manager succession? Do the corporate performance, governance structure and the market for corporate control have an important impact on the SOE manager succession and the origin of successors? As the result, the problem of this dissertation is how SOE can substitute good managers for bad managers?Firstly, on the basis of agent theory and market for corporate control theory, this dissertation analyses how the board of directors select managers efficiently. The internal corporate governance, namely board of directors' independence, the manager market information and external governance of market for corporate control determine the efficiency of manager selection dramatically. If the manager controls the board of directors or the manager market information is not available, the efficiency of manage selection will be reduced.Secondly, this dissertation analyses the efficiency of manages selection in SOE from the perspective of corporate governance. Because the government is the largest shareholder of SOE and board of directors' governance function is weakening, it is reasonable for the government select manager in SOE. However, government has various objects and the corporate governance is not perfect in SOE. Thus it is difficult for government to select good managers.Thirdly, through the case of Hongta Group Company and American General Electric Company, this dissertation compares the government with board of directors select manager. The pattern of manager selection is influenced by many factors, such as the ownership structure, governance structure and corporate scale etc. Thus there is no well-generalized manager selection pattern.Then, this dissertation uses panel data as sample for the period from 1999 to 2005, including 739 listed companies controlled by the government on 31 Dec. 1999. On the basis of manager succession theory, it analyzes the factors that determine the manager succession, such as corporate governance, change of corporate performance and market for corporate control by using logit probability models. Furthermore, it studies the corporate performance after manager succession.The empirical analysis of the manager succession, corporate governance and corporate performance indicates: Corporate performance has a negative relation with the possibility of manager succession. That is, the decrease of the corporate performance will increase the possibility of the current manager replacement. Also, the ownership structure change always goes with corporate manager change. In a word, the internal governance structure does have an effect on the manager succession, while it is very limited compared to the corporate ownership structure change. This results from the inefficient corporate governance structure in most of the Chinese listed companies. The board of directors, the independent directors and equity incentive are influenced by the policy to a large extent. Some old systems have also restricted the force of internal corporate governance and monitoring. As far as the corporate performance (after manager succession) is concerned, no matter whether it was low or high before manager succession, it cannot be improved in a long period by the manager succession. In short term, whether the performance before manager succession is considered or not, the corporate performance can be promoted by the succession of chairman. If corporate performance goes down, both the succession of general manager and chairman can improve the performance. From long term, the succession of chairman & general manager is not the factor of remarkable promoter of the corporate performance. Nevertheless, the reforms of the corporate governance structure, specially increasing the percentage of independent directors, the appropriate scale of board of directors are the key plan of the improvement of corporate performance.The empirical study of the resources of succession, corporate governance and corporate performance indicates:A. Corporate performance, internal governance structure, change of corporate ownership structure as well as corporate scales significantly influenced the successor origin. The increase of corporate performance has positive relation with the possibility of the general manager successor coming from inner corporate, and it has decreased the possibility of successor coming from out-industrial no-shareholder corporate. The increase of independent directors as well as the separation between general manager and chairman will not only decrease the probability of manager in-corporate succession but also increase the possibility of successor coming from out of the corporate.B. The corporate performance variation does not only depend on the origin of successor. The corporate performance before manager succession and governance structure also has effect on the corporate performance variations. However, no origin of successor can improve the corporate performance in the long time. Furthermore, the improvement of corporate governance structure, especially board of director structure, can significantly improve the corporate performance in the long period.C. The percentage of manager succession from internal corporate is higher than that from external corporate in the sample. The reasons are: the most of the listed companies in china, specially the state-owned listed company, have very centralized ownership structure. The first principal shareholder, government, controls extremely high proportion shares of the listed company. Furthermore, the corporate internal & external governance structure in China is still not too perfect. So the internal monitor system has been weakened and controlled by the principal shareholders. More over, because Chinese capital market and manager market are not so mature that the cost of selecting manager from outside of corporate is far higher than from inside corporate. That is why most of the listed company in China tends to select manager from corporate inside.The main conclusion of this dissertation is: Manager Selection is not a simple question, namely, who decides manager or which system selects manager. Whether good manager can be selected or not mainly depends on the corporate inner governance structure as well as external system of market economy, Such as, corporate share structure, independence of board of directors, manager market, market for corporate control etc. Thus, the reform of the manager selection of Chinese SOE has to be reconsidered from the improvement of corporate governance structure and the perfect market system etc.