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This paper provides empirical evidence that political connection can hurt corporate governance by aggravating managerial entrenchment. CEO’s political connection lowers the probability of forced CEO turnover by about 20% on average in Chinese listed firms. This pattern is especially strong in privately controlled firms compared to state-owned enterprises. Political connection also significantly lowers the sensitivity between CEO turnover and firm performance, thereby weakening disciplinary mechanism to replace poorly performing CEOs. Following forced CEO turnover in the presence of political connection, firm performance improves. These findings provide strong evidence that political connection does indeed lead to undesirable managerial entrenchment.

Political Connection and Managerial Entrenchment: Evidence from CEO Turnovers in China