The Impact Of CEO Succession Via Hierarchical Jumps On Performance,Agency Cost And Innovation:Evidence From Chinese Listed Firms

Corporate governance mechanism of an organization is the most significant factor which can agitate the firms?performance in positive or negative direction.Further,firms?performance is also interlinked with agency problem and innovative intensity.Thus,ameliorated corporate governance structure executes such strategies which can mitigate the agency cost and enhances the innovative activity within the organization so that firms?performance may be prolonged for the maximum duration.The execution of the strategies and implementation of new rules within the organization is under the CEO discretion.Comprehensively,the role of CEO is worthwhile to be examined while influencing the different aspects(performance,agency cost and innovation)of an organization.Doubtlessly,CEOs demographic attributes along with his cogent strategies do intensify the firms?growth while curtailing the agency cost and escalating the organizational innovation.Inevitably,every CEO has to depart either completing his tenure or forcefully.Consequently,CEO successor has to take the office which can be a two-edged sword for the firms(Davis et al.,2010).Regular or routine CEO succession is an inevitable process within the organization but forceful or non-routine turnover is always due to specific reasons(poor performance).Vehemently,the aftermath of CEO succession has been contemplated and no one deny the significance of hierarchy(He&Huang,2011)but hierarchical jumps in CEO succession still require a comprehensive study.Though corporate governance theory emphasizes on the specific aspects of an organization which are conducive for the firms?future growth but neglects the role of board members within the hierarchical ladder which this study has analyzed empirically.Psychological aspect of an individual within the hierarchy has also been examined via specific type of hierarchical jump named as hierarchical intensity.Hierarchical jump has been contemplated while analyzing the hierarchical rank of each board member which is mentioned in the company?s profile.Convincingly,it is significant to analyze the hierarchical rank which indicates the authority and seniority,specifically for the Chinese firms(He&Huang,2011).Using this proxy(hierarchical rank in company?s profile),we have formulated our independent variable(hierarchical jumps)to conclude its impact on the firm?s performance,agency cost problem and innovation.Hierarchical jump will be considered whenever a CEO appointed through surpassing the senior board members which can definitely affect the firm?s performance,agency cost and innovation respectively.Since last few decades,Chinese economy has not only flabbergasted the world but also organizational scholars.This has compelled the research scholars to comprehend how amalgamated(half socialist and half capitalist)economy is booming decisively.Due to these emphatic reasons,we have selected China for conducting this research related to corporate governance.Moreover,in China the corporate governance is novel(as CSRC~1 promulgated certain rule for corporate governance in 2001)which is why it is interesting to analyze how Chinese companies are booming while adhering to these novel corporate laws.Additionally,the Chinese firms are under strict surveillance of government(via government ownership),even then the growth of SOEs is irresistible.Meanwhile,non-SOEs are also prospering despite of partially controlled by government(as their CEOs are political linked)(Wu et al.,2018).Though among non-SOEs,CEOs are invulnerable in case of poor performance of a firm but among state owned enterprises,in such scenario,CEO can be turned over forcefully.In this regard,the research on hierarchical jumps among this juxtapose of organizations(SOE and non-SOE),is worthwhile to be conducted.This study has contributed by contemplating the impact of hierarchical CEO succession on performance,agency cost and innovation.Through empirical evidence,it has been concluded that hierarchical jumps are blessing in disguise not only for performance but also for reducing agency cost and enhancing organizational innovation.We have selected the all the firms listed on Shenzhen and Shanghai stock exchange from 2012-2016.For empirical analysis,Panel regression technique has been executed for analyzing the impacts of hierarchical Jumps.Through embedding the control variables,it has also been evaluated that the incumbent CEOs via hierarchical jumps not only escalate the firms?growth but also mitigate the agency cost problem.Moreover,this research also unveils that incumbentCEOs via hierarchical jumps are orientated towards innovation.Through categorization of hierarchical jumps,it has also been evaluated that middle hierarchical jumps is the most significant hierarchical jumps among the low and high hierarchical jumps.Middle or medium hierarchical jumps in CEO succession,not only enhance the performance but it also boosts the innovative activity within the organization.Additionally,the incumbent CEOs via high hierarchical jumps mitigate the agency cost decisively.Meanwhile,this study has also evaluated the impacts of hierarchical jumps on performance of SOEs and non-SOEs separately.Empirical results contemplate the positive effects of hierarchical jumps on SOEs while insignificant results have been revealed for non-SOEs.Specifically,moderator impact of independent directors and supervisors has also been contemplated to comprehend their significance during hierarchical jumps.Moderator has revealed positive effectiveness on firms?growth.Additionally,hierarchical intensity has been formulated to comprehend the effectiveness of hierarchical jumps while neglecting the senior board members.Conclusively,hierarchical intensity does influence the performance and SOEs performance.Lastly,we have executed difference in difference technique to authenticate that hierarchical jumps do escalate the firms?performance.We have also regressed the2SLS instrumental regression to consolidate our results without any threat of endogeneity problem.