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Star CEOs or Political Connections? Evidence from China's Publicly Traded Firms
Author(s) -
Conyon Martin J.,
He Lerong,
Zhou Xin
Publication year - 2015
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12110
Subject(s) - star (game theory) , politics , china , incentive , compensation (psychology) , executive compensation , social connectedness , government (linguistics) , business , accounting , economics , political science , market economy , law , psychology , social psychology , mathematical analysis , linguistics , philosophy , mathematics
This paper studies China's “star CEOs” defined as members of the National People's Congress (NPC) or the National Committee of the Chinese People's Political Consultative Conference (CPPCC) and “politically connected” CEOs who have previous government or military experience. We evaluate the effect of “star CEOs” and “politically connected” CEOs on firm performance and CEO compensation. We find that announcement date returns, CEO compensation and incentives are all higher in firms that appoint “star CEOs”. However, the mechanism explaining these various premiums is largely political connectedness of these star CEOs. Our study finds only modest evidence that star‐CEO status directly determines firm performance. Our analysis strongly suggests that compensation and performance premiums are mostly driven by CEO political connections, as opposed to CEO talent/star effects.