Executives Promotion Under The Government Control Based On Operating Performance

During30years of economic reformed, the operational mechanism of our state-owned enterprises (SOEs) change dramatically. In order to improve the operational efficiency of SOEs, The government had given some right of operation and management to the enterprise, for example the production decision, the labor employment, the product pricing decision. At the same time, the government had also promised to separate government functions from enterprise management through several levels, such as National People’s Congress (NPC) and General Office of the State Council.But the enterprises under the control of the government can still be intervened company management decisions, through the appointment of its executive. Both the theoretical studies and facts have shown that senior executive turnover and the company’s operating performance exist significant correlation with the intervention of government non-economic. Due to the local government’s pursuit of the financial income and expanding employment, the government is likely to intervene in the decision of enterprise management with non-economic objectives, and the interests of the bias is not consistent at all levels of the government. At present, the Chinese government is not only the pursuit of economic development, but also for social stability, and the employment situation had a great influence on social stability. Therefore, on the one hand, because of their own interests, such as employment, the government may intervene to the enterprise management without non-economic objective. On the other hand, the government has promised to separate government functions from enterprise management, to give enterprise full autonomy, freedom to participate in market competition. At present, most of existing research on the sensitivity of executive turnover and performance by comparing the government control company and non-governmental control, to analyze of the effect of government intervention in corporate governance. However, this kind of research implicit an important assumptions, that two types of company executives turnover environment and background are the same. But, in fact, under the control of non-governmental executive turnover is an external labor market, and the government under the control of executives of listed companies changes is an internal labor market. So the study of implicit assumption is not established. And in some existing research on executive turnover were not typed and subdivided. In the internal market, the government under the control of company executives governance not only includes demotion, but also including promotion. The former usually is negatively related to the performance, the latter usually positively related to the performance. If the government under the control of executives and non-governmental executives turnover simply mixed to compare together, the results not only may be lack of integrity, and it also may have a mixed effect. Especially with the establishment of state-owned assets supervision and administration commission, the completion of the stock ownership reform, our state-owned enterprise system environment changed a lot. So, the change of system background of corporate governance has had a huge impact, we cannot be ignored.In theory, as the main way of executive incentive, the promotion with the company performance should be significantly positive correlation. Due to administrative level of the executives, for some executives,the administrative level means seniority and position, is often one of the important parameters to measure executives identity, so that executive promotion may result in serious distortion of incentive. For some executives, the government under the control of state executive has great attraction to the pursuit of advancement. Many executives are also the candidate of local government, so the pursuit of the promotion has a very strong desire. Executives with earnings management can reach own purpose. For the government, because of the government’s non-economic performance targets such as officials of rent-seeking, in fact executive promotion, it not necessarily is based on economic performance. However, on the one hand, because of the promise of government, it seems that the executive promotion may be based on the performance. On the other hand, the government often increase corporate profits through the government subsidies, price subsidies and other forms. So, both of the government and company executive, they has strong incentive for earnings management to achieve the corresponding goal. This article attempts classified promotion and non-promotion in the perspective of executive turnover. With many system economics and management theory, examining whether turnover happened under control of the government executive promotion based on the company’s operating performance, and government intervention is deviated from the economic performance targets during the economic transition of system background.This article takes the SOEs under the government control which happened turnover in2005-2012as the research sample. Combined with the empirical analysis and normative analysis, analyzing the relation between turnover and operating performance, and investigate whether executives promoted based on the company’s performance. On the basic of CSMAR data, this article inspect company business performance on executive promotion of correlation through the descriptive statistics and LOGIT regression.In order to better study different levels government interventions, this article further inspect the relationship between executives promotion and the company’s earnings management, and further study the intervention between the central government and local government through comparative and comprehensive analysis. First of all, through the executive turnover of descriptive statistics, comparative the number of times of the central and local government about executive turnover, found that the local government executive change number more than twice as much as the central government, the change of the ratio with executives promotion has not big difference. Research has shown that the central government than local governments more cautious, more emphasis on the steady development of the enterprise.Secondly, this article test the relationship with the company performance by setting model. Regression results show that the executive promotion positively correlated with the company’s accounting performance significantly, but the market performance is not significant positive correlation. This suggests that the Chinese government about executive promotion decision is based on the company economic performance, namely the better operating performance, the greater the likelihood of executives promoted. The empirical results show that during recent10years in the process of the reform of SOEs, the government intervention at least is in accord with economic performance targets on the process.Finally, this article analyze the relationship between executive promotion and the degree of earnings management, calculate model of residual error as the degree of earnings management with the JONES model. The results show that the executive promotion has increased the degree of earnings management. And in the case of other conditions unchanged, the central government under the control of executives promoted changes to increase the degree of earnings management is bigger than the local government.This paper extended the research about executive turnover related to the business performance, but also enriched the earnings management research results. But it is limited by the data resources and the level of individual research, there are some deficiencies in this paper. First, the promotion data was collected from the Internet, so it maybe exit some errors, which may affect the accuracy of the article. Second, in studying the relation between earnings management and executive promotion, this paper only considers the accrued earnings management, and does not take into account the real earnings management. Finally, on the analysis of the relationship between the degree of earnings management and executive promotion, and we did not analyze the concrete form of earnings management behavior.