Government Control, Executive Turnover And Power Entrenchment

This paper uses the sample of 300 government-controlled listed companies in the securities market of China from 2000 to 2005 to examine whether the commitment of the government to "separate government functions from enterprise management" in partial privatization has been kept properly. According to the results of this paper, in the government-controlled internal labor market, not only the promotion of executives is not related to economic performance of the company, but also the demotion of executives is significantly related to economic performance only when the economic performance is at a comparatively low level. Meanwhile, as noneconomic foctors, the political relationships of executives are playing a significant entrenchment role in executive turnover decisions of companies. This indicates that in these partial privatized companies, the governance decisions are still intervened by the non-economic objectives of the government. This paper further finds that in government-controlled companies, the executive turnover decisions are not considered by the market as positive governance behavior, bring no positive returns for shareholders and provide no improvement in financial performances as well. It can be concluded that from the perspectives of both the decision-making processes and the consequences of executive turnover, the government intervention in enterprise management violates the objective of economic efficiency. Therefore, in partial privatization, though the government hopes to reduce government intervention, separate government functions from enterprise management, and improve the efficiency of state-owned enterprises through the legislation of National People's Congress (NPC), the resolution of Central Committee of the Communist party of China (CCCPC), the policy of the State Council, and various institutional reforms, the empirical evidence of this paper shows that all the commitments have not been kept credibly.