Study On Abnormal Change Of Core Senior Management Of Listed Companies

With more than20years’ development of Chinese capital market, a large number of listed companies have emerged gradually and a lot of executives have also emerged. Listed companies and their executives have always been the focus of the market and media. Besides, executives of listed companies have favorable treatment. Theoretically speaking, executive of listed company should be an occupation both regaining fame and wealth gathering in the spotlight with a golden bowl in hand. However, in recent years, there are more and more changes of executives of listed companies in the capital market, even the changes of core executives. It is more obvious of resignations of GEM executives. The resignation ratio is higher. Until2012, there are249listed companies on GEM and there are112listed companies have phenomenon of executives’resignations which has the ratio of45%. In these two years, this phenomenon has not been slowed down but has the sign of warming-up. As a report of China Securities Network in2013, according to the statistic information, there are152listed companies executives leaving their posts in November of2013. Only in one month, there are5companies’executives resigning per day. And since2013,1818executives have left their posts.A large number and high frequency resignations of listed companies’ executives have become the focus of attention of the capital market and media. As an executive of listed company both gaining fame and wealth, why does he lost the golden bowl suddenly? As the reports of media, they resign for cash. Why do they need to resign for cash? According to the Companies Acts and provisions of the Shenzhen Stock Exchange, shareholding reductions of these executives are limited. For the executives of listed companies, their annual reductions of the shares shall not exceed25%of their shares. However, one year after resignation, these executives could sell all the shares. Because of the restrictions by the laws and regulations, if executives want to cash as soon as possible, it is better to resign when the company is listed for half a year. Because when the executive resigns for more than six months, the company is also listed for more than a year, then he can sell another25%of the shares.Frankly speaking, it is reasonable as talked above. If executives of listed companies want to cash as soon as possible, then resignation is the most convenient way for them.But the author of this paper thinks that it is just a superficial phenomenon that executives of listed companies’resignation for cash as soon as possible. Instead of long-term holding shares of the company, why do they resign for cash? Listed companies’ executives have favorable treatments themselves, why do they have short-sighted behaviors like this? Like Fang Hongbo of Midea Group, why does not he leave his post? To some extent, executive’s resignation shows that he is not optimistic about the company. And it lies in the quality of the company. For instance, before*ST earth (002200) was found to be listed with fraudulent issuance of shares, executives had been changed with a high frequency. Prospect theory provides a theoretical support for the interpretation of the above matters. The principles of prospect theory are as follows:firstly, when faced with profits, with diminishing marginal returns, people tend to have risk aversion and think the expected result is not so ideal. Under the condition of uncertain benefits, people would give probability weights lower than the real one. This is the familiar certain effect. Secondly, when faced with loss, with increasing marginal returns, people tend to have risk preference and think the expected result is not so bad. Under the condition of uncertain loss, people would give probability weights lower than the real one. This is the familiar reflection effect. Thirdly, people are usually the risk-aversion type. Compared with gaining profits, people are more sensitive to the possible loss, this is loss aversion effect. As those core executives of listed companies, they have gained both fame and wealth, so they have certain profits. When they are faced with risks, they would prefer risk aversion, which lead to the changes of core executives.From the perspective of the prospect theory, from the angle of risk premium faced by executives of listed companies, this paper has analyzed the deep-seated motivation of the abnormal changes of listed companies’ core executives by the combination between theoretical analysis and empirical tests. This paper has chosen those companies of Small&Medium-sized Panel and GEM which have abnormal changes of listed companies’core executives from2012to2012, and then found out3other matching companies whose total assets are the closest to those companies. This paper has taken the logit regression analysis method to analyze some characteristics of those listed companies suffering abnormal changes of core executives.This paper is divided into six parts in general:The first part:introduction. This part is the overall planning and mainly introduces the background, purpose and significance of this paper. It has made some definitions of related concepts and illustrated the research idea, content and frame, research methods.The second part:related literature review. This chapter mainly summarizes and reviews related research costs.The third part:related theoretical analysis of abnormal changes of core executives. This chapter firstly makes some introductions of the prospect theory and chooses some living examples to make a popular understanding so as to find theoretical support for paper’s argument. Secondly, according to the prospect theory, this chapter has analyzed the reason of abnormal changes of core executives from two parts as risks and returns of executives for their working in the listed companies.The fourth part:statistical analysis of abnormal changes of core executives. This chapter has made statistics and analysis of the number of people of changes of core executives of the listed companies on2010-2012Small&Medium-sized Panel and GEM. And it has targeted at the motivation to make general summary, from the phenomenon of executives’ changing to get the common reason of executives’ changing.The fifth part:empirical study. This paper has chosen those companies of Small&Medium-sized Panel and GEM which have abnormal changes of listed companies’ core executives from2012to2012, and then found out3other matching companies whose total assets are the closest to those companies. By taking those two parties as two data to make descriptive statistics and T texts, this paper has got significant differences factors and taken the logit regression analysis method to make empirical study. The sixth part:This chapter has made conclusions, recommendations and described the contributions and insufficiency of this research and the prospect of the future research.As the comprehensive analysis, we can get conclusions as follows:The managing statuses of those Small&Medium-sized Panel and GEM listed companies have significant negative influences of abnormal changes of core executives. If the listed company has a well managing status, then the ratio of abnormal changes of core executives is small.The financial risks of those Small&Medium-sized Panel and GEM listed companies have significant positive influences of abnormal changes of core executives. Financial risks are various but they will be handled by certain financial index or non-financial index. When a listed company has the signal of huge financial risks, the core executives usually take the attitude of risk aversion. Then abnormal changes of core executives happen.Except for the governance and financial risk of listed companies, some other important issues are the factors of abnormal changes of listed companies’core executives, such as whether a company has been punished or accused in public. Because the punishment of a company is an ultimate form of company’s risks, which means it has been noticed by the the supervision department. At that time, executives would choose risk aversion and resign.As the conclusions above, this paper has several suggestions for the listed companies and investors as follows:Suggestions for listed companies:The most fundamental purpose of company’s financial activities is to create maximization wealth for shareholders. The core executive is an important figure in the business development of the company, so in order to create maximization of shareholders’ wealth; listed companies should stabilize the management team of the company.In addition to the optimization of corporate governance, stabilizing management should abide by laws and regulations so as to regulate the healthy development of the company.Suggestions for investors:As analysis above, we can see that changes of core executives of listed companies shows that executives have negative prospect of companies or the companies management have certain risks which would influence companies’ achievement and fatherly influence shareholders wealth. So we suggest that when investors make investment, they should especially pay attention to the companies having core executives’ changes and deeply make research of basic information of the company. As those companies which have huge changes of core executives, especially those listed companies with various bad indicators, investors should be cautious.