Returnee CEOs Under Weak Institutions: Blessing or Curse?

Abstract

This paper studies CEOs with overseas experience, known as returnee CEOs. We show that Chinese returnee CEOs are associated with inferior performance, lower market reactions to appointment announcements and an adverse regulatory environment. We argue that CEOs’ international expertise is acquired at the opportunity cost of local social capital, such as political and business ties, which is more critical than expertise in transition economies with weak legal institutions. The negative effect disappears when social capital is acquired, regional legal institutions are strong or returnees’ international expertise is in demand. Exploiting an exogenous increase in the supply of returnee talent as a result of new provincial policies, we find the results consistent.