The Research On CEO Turnovers Affecting Budgetary Slack Level

In recent years, listed companies in China changed their CEOs more and more frequently, Wu Bo and Fan Min, had already resigned from the Lashou and Ctrip company, Li Bin succeed as the CEO of Suning E-commerce. There were more than 1800 senior managers left the listedcompanies in 2012 according to the information disclosure by China Securities Regulatory Commission(CSRC), much more higher than the date of last year. All the signs and data indicate that the future of Chinese company senior managers are unpredictability.Researchs on CEO turnovers began in the 60’s of last century, scholars have made a lot of studies of CEO turnovers in western countries’ listed corporation, based on the Agent Theory and the early theory of corporate governance. While they mostly studied the influence of CEO turnover on company performance, without considering the inner relationship of CEO turnover and company performance, such as the budgetary management, which leads to a huge problem, the budgetary slack.Budgetary management system in China has developed less than two decades, officially began in September 2000, the state economic and trade commission issued <The establishment of a comprehensive budgetary management system of state-owned large and medium-sized enterprises>, after years of development, the budgetary management system in our country enterprise has obtained certain achievements, but the system is still not mature. Budgetary slack is inevitable in budgetary management, a large number of budgetary slack will greatly affect the objectivity and authenticity of the budgetary plan, and will react against budgetary management. The budgetary slack has become the core issue of corporate governance research since the 1990. But since CEO turnover behavior is not continuous exist in the process of corporate governance, scholars considered little about the relationship between CEO turnovers and budgetary slack. In this context, this article analyzed budgetary slack in the perspective of the CEO turnover and correlation between the two factors.This paper firstly systematically summarizes the domestic and foreign literature of CEO turnovers and budgetary slack. And then based on the Agent Theory, Contingency Theory and Organizational Inertia Theory, this article analyzed the relationship between CEO turnover and budgetary slack, by dividing the CEO turnover into two processes, dismission process and succession process, which can further classified into regular dismission and irregular dismission, internal succession and external succession according to the leaving reasons and the sources succession sources, which leads to the hypothesis that different kinds of CEO turnovers may have different impacts on budgetary slack level.Therefore, based on the samples from the listed companies in Shanghai and Shenzhen Stock Exchange from 2007 to 2012, the research design uses the formulas designed by Pan Fei to calculate the level of budgetary slack for reference, using multivariate regression analysis, makes a research on the CEO turnover behavior impacting the budgetary slack level. The research discovered that different types of CEO turnovers have different impacts on budgetary slack level. After controlling for other factors that affecting the budgetary slack level, the study found that CEO turnover is negatively related to the budgetary slack level, and irregular dismission and external succession have more significant effect than regular dismission and internal succession.According to the research results, we can conclude that the irregular dismission of former CEOs can put huge pressure to the successors to make more cautious budgetary plans.And external successors are more capable of overcoming the organizational inertia. Further test and Robustness test also support the idea.At last this paper also point out the deficiencies and the limitations of the research and provide a new direction for further research. Suggestions according to the conclusion for corporate governance are also made as below: Set A new evaluation standard for CEO ability, not only pay attention to the company performance, but also the budgetary slack in the budgetary management. Design new Incentive mechanism related to the budgetary slack level. Strengthen the power of audit committee, or set up budgetary committee in the board of directors in listed companies, establish comprehensive professional manager market which can effectively overcome internal organizational inertia and make innovative strategic choice. All the policy proposals provide new approach for CEO turnover mechanism and the CEO capability assessment.