Myth or reality? Unveiling the effectiveness of hierarchical CEO succession on firm performance and cash holdings
Abstract
The objective of the study is to contemplate the effectiveness of hierarchical CEO succession and hierarchical CEO succession intensity on SOEs & Non-SOEs performance separately. Meanwhile, the impact of hierarchical CEO succession on cash holdings has also been analysed. The authenticated data has been accumulated from CSMAR for the years 2012-2016 contemplating the listed companies (SOE and Non-SOEs separately for performance while overall companies for cash holdings) on Shenzhen and Shanghai stock exchanges. Through categorization of hierarchical CEO succession, it has been signified that middle-level hierarchical CEO succession elevates the SOEs performance. In contrast, middle and high-level hierarchical CEO succession mitigate the cash holdings. Conclusively, earning management as a moderator has been analysed while deducing that hierarchical CEO succession reduces cash holdings despite firms involving earning management activity which is ultimately beneficial for firms’ growth. The empirical results are robust to alternate technique 2SLS instrumental regression that controls for endogeneity.
Keyword : corporate governance, hierarchical CEO succession, hierarchical CEO succession intensity, firm performance, cash holdings, earning management
How to Cite
Sarfraz, M., He, B., Shah, S. G. M., & Fareed, Z. (2021). Myth or reality? Unveiling the effectiveness of hierarchical CEO succession on firm performance and cash holdings. Journal of Business Economics and Management, 22(4), 1008-1025. https://doi.org/10.3846/jbem.2021.13559
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Zhang, Y., & Qu, H. (2016). The impact of CEO succession with gender change on firm performance and successor early departure: Evidence from China’s publicly listed companies in 1997–2010. Academy of Management Journal, 59(5), 1845–1868. https://doi.org/10.5465/amj.2014.0176
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Chang, C.-C., Kato, L.-H., & Chen, H.-Y. (2018). How does real earning management affect the value of Cash holdings? Comparison between information and agency Perspective. Pacific Basin Finance Journal, 51, 47–64. https:/doi.org/10.1016/j.pacfin.2018.06.001
Cyert, R. M., & March, J. G. (1963). A behavioral theory of the firm. (pp. 169–187). Prentice-Hall.
Conyon, M. J., & He, L. (2011). Executive compensation and corporate governance in China. Journal of Corporate Finance, 17(4), 1158–1175. https://doi.org/10.1016/j.jcorpfin.2011.04.006
Daily, C. M., Certo, S. T., & Dalton, D. R. (2000). International experience in the executive suite: The path to prosperity? Strategic Management Journal, 21(4), 515–523. https://doi.org/10.1002/(SICI)1097-0266(200004)21:4%3C515::AID-SMJ92%3E3.0.CO;2-1
Dittmar, A., Mahrt-Smith, J., & Servaes, H. (2003). International corporate governance and corporate cash holdings. Journal of Financial and Quantitative analysis, 38(1),111–133. https://doi.org/10.2307/4126766
Fauver, L., Hung, M., Li, X., & Taboada, A. G. (2017). Board reforms and firm value: Worldwide evidence. Journal of Financial Economics, 125(1), 120–142. https://doi.org/10.1016/j.jfineco.2017.04.010
Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9(2), 193–206. https://doi.org/10.5465/amr.1984.4277628
Harford, J., Mansi, S. A., Maxwell, W. F. (2008). Corprorate Governance and firm cash holdings in U.S. Journal of Financial Economics, 87(3), 535–555. https://doi.org/10.1016/j.jfineco.2007.04.002
Hazarika, S., Karpoff, J. M., & Nahata, R. (2012). Internal corporate governance, CEO turnover, and earnings management. Journal of Financial Economics, 104(1), 44–69. https://doi.org/10.1016/j.jfineco.2011.10.011
He, J., & Huang, Z. (2011). Board informal hierarchy and firm financial performance: Exploring a tacit structure guiding boardroom interactions. Academy of Management Journal, 54(6), 1119–1139. https://doi.org/10.5465/amj.2009.0824
Hu, F., & Leung, S. C. (2012). Top management turnover, firm performance and government control: Evidence from China’s listed state-owned enterprises. The International Journal of Accounting, 47(2), 235–262. https://doi.org/10.1016/j.intacc.2012.03.006
Intintoli, V. J., & Kahle, K. M. (2016). Cash holdings and CEO turnover. Quarterly Journal of Finance, 6(04), 1650022. https://doi.org/10.1142/S2010139216500221
Iqbal, S., Nawaz, A., & Ehsan, S. (2019). Financial performance and corporate governance in microfinance: Evidence from Asia. Journal of Asian Economics, 60, 1–13. https://doi.org/10.1016/j.asieco.2018.10.002
Jarva, H., Kallunki, J. P., & Livne, G. (2019). Earnings performance measures and CEO turnover: Street versus GAAP earnings. Journal of Corporate Finance, 56, 249–266. https://doi.org/10.1016/j.jcorpfin.2019.02.005
Jiang, F., Huang, J., & Kim, K. A. (2013). Appointments of outsiders as CEOs, state-owned enterprises, and firm performance: Evidence from China. Pacific-Basin Finance Journal, 23, 49–64. https://doi.org/10.1016/j.pacfin.2013.01.003
Jebran, K., Chen, S., & Tauni, M. Z. (2019). Principal-principal conflicts and corporate cash holdings: Evidence from China. Research in International Business and Finance, 49, 55–70. https://doi.org/10.1016/j.ribaf.2019.02.010
Kim, I., Miller, S., Wan, H., & Wang, B. (2016). Drivers behind the monitoring effectiveness of global institutional investors: Evidence from earnings management. Journal of Corporate Finance, 40, 24–46. https://doi.org/10.1016/j.jcorpfin.2016.06.006
Kusnadi, Y. (2019). Political connections and the value of cash holdings. Finance Research Letters, 30, 96–102. https://doi.org/10.1016/j.frl.2019.03.035
Li, H., Hang, Y., Shah, S. G. M., Akram, A., & Ozturk, I. (2020). Demonstrating the Impact of Cognitive CEO on Firms’ Performance and CSR Activity. Frontiers in Psychology, 11. https://doi.org/10.3389/fpsyg.2020.00278
Mobbs, S. (2013). CEOs under fire: The effects of competition from inside directors on forced CEO turnover and CEO compensation. Journal of Financial and Quantitative Analysis, 48(3), 669–698. https://doi.org/10.2139/ssrn.1108438
Page, T. B. (2018). CEO attributes, compensation, and firm value: Evidence from a structural estimation. Journal of Financial Economics, 128(2), 378–401. https://doi.org/10.1016/j.jfineco.2018.02.006
Sarfraz, M., Ozturk, I., Shah, S. G. M., & Maqbool, A. (2020). Contemplating the impact of moderators agency cost and supervisors on corporate sustainability under the aegis of cognitive CEO. Frontiers in Psychology. https://doi.org/10.3389/fpsyg.2020.00965
Sarfraz, M., Qun, W., Shah, S. G. M., & Fareed, Z. (2019). Do hierarchical jumps in CEO succession invigorate innovation? Evidence from Chinese economy. Sustainability, 11(7), 2017. https://doi.org/10.3390/su11072017
Shah, S. G. M., Tang, M., Sarfraz, M., & Fareed, Z. (2019a). The aftermath of CEO succession via hierarchical jumps on firm performance and agency cost: Evidence from Chinese firms. Applied Economics Letters, 26(21), 1744–1748. https://doi.org/10.1080/13504851.2019.1593932
Shah, S. G. M., Sarfraz, M., Fareed, Z., ur Rehman, M. A., Maqbool, A., & Qureshi, M. A. A. (2019b). Whether CEO succession via hierarchical jumps is detrimental or blessing in disguise? Evidence from Chinese listed firms. Zagreb International Review of Economics and Business, 22(2), 23–41. https://doi.org/10.2478/zireb-2019-0018
Sun, Q., Yung, K., & Rahman, H. (2012). Earning quality and cash holdings. Accounting and Finance, 52, 543–571. https://doi.org/10.1111/j.1467-629X.2010.00394.x
Wong, T. J. (2016). Corporate governance research on listed firms in China: Institutions, governance and accountability. Foundations and Trends® in Accounting, 9(4), 259–326. https://doi.org/10.1561/1400000039
Wong, Y. J., & Chen, L. Y. (2018). Does the origin of a succession CEO matter in the market value of innovation? Disentangling the origin of internal CEOs. Canadian Journal of Administrative Sciences, 35(1), 136–145. https://doi.org/10.1002/cjas.1396
Wu, H., Li, S., Ying, S. X., & Chen, X. (2018). Politically connected CEOs, firm performance, and CEO pay. Journal of Business Research, 91, 169–180. https://doi.org/10.1016/j.jbusres.2018.06.003
Wu, W., Yang, Y., & Zhou, S. (2017). Multinational firms and cash holdings: Evidence from China. Finance Research Letters, 20, 184–191. https://doi.org/10.1016/j.frl.2016.09.024
Xu, N., Chen, Q., Xu, Y., & Chan, K. C. (2016). Political uncertainty and Cash holdings: Evidence from China. Journal of Corporate Finance, 40, 276–295. https://doi.org/10.1016/j.jcorpfin.2016.08.007
Xu, X., & Li, Y. (2018). Local corruption and corporate cash holdings: Sheltering assets or agency conflicts? China Journal of Accounting Research, 11, 307–324. https://doi.org/10.1016/j.cjar.2018.05.001
Zhang, Y., & Qu, H. (2016). The impact of CEO succession with gender change on firm performance and successor early departure: Evidence from China’s publicly listed companies in 1997–2010. Academy of Management Journal, 59(5), 1845–1868. https://doi.org/10.5465/amj.2014.0176
Zhu, J., Ye, K., Tucker, J. W., & Chan, K. J. C. (2016). Board hierarchy, independent directors, and firm value: Evidence from China. Journal of Corporate Finance, 41, 262–279. https://doi.org/10.2139/ssrn.2638512