CEO Turnover,Political Connection And Financial Distress Recovery

The research on financial distress recovery abroad started in the 80th of 20th century.Under the analytical framework of the life cycle of enterprise, and based on the corporate governance theory and bankruptcy theory, the corporate governance scholars, financial scholars, carried out a large amount of research about the internal governance and external macro environment factors that affect corporate financial distress recovery. However,domestic research on financial distress recovery is still in its infancy, especially for the further study of factors influencing the financial distress recovery is relatively insufficient.In this paper, using data of Chinese listed ST firms from 2002 to 2011, we explore the influence of the CEO turnover on the recovery from financial distress, and furthermore, we examine the role of professional background and "relationship" background of successors play in the recovery of financial distress. Next, we explore the change of political connection after the CEO turnover, and identify the channels through which political connection affect the recovery of financial distress. The results reveal that: after plunged into financial trouble, the universal CEO turnover during financial distress dilemma is a successful tool that can help distressed firms recover. Further study about professional background and "relationship" background of succession executives finds that, the professional of CEO experience and financial work experience can significantly help the company get out of trouble and improve the company's accounting performance, while successors' age, educational background, and source of succession are ineffective for the recovery. And executives' "relationship" resources,including both political association and bank relation do play a positive role in the the recovery from financial distress company and accounting performance. What's more, after considering the background of the departing executives, the above conclusions do not change. At the same time, the change of CEO increases the intensity of political connections. Political connections of distressed firms also play a catalytic role in the emergence from financial trouble, and political connections of distressed firms can significantly help companies obtain government subsidies. While using mediator effect analysis, we indentify that the partial mediator of government subsidy between political connection and financial distress, in other words, government subsidy is an effective channel through which political connections help the company out of financial dilemma.Based on the special treatment system in our country's securities market, this thesis explores the impact of CEO turnover and political connections of ST firms on the recovery from financial distress, and the connection between CEO turnover and political connections,which supplements the literature of corporate governance and financial distress restoration theory. The results also provide evidence for the decision on the replacement of top executives, the selection of appropriate successors, and the establishment of political association with government for distressed firms.