Abstract
This paper evaluates Chinese state-owned enterprises (SOEs) to examine the influence of the CEO political promotion incentive (PPI) on the long-term performance and performance volatility of their firm. Empirical tests demonstrate that CEO PPI is negatively correlated with long-term performance because CEOs favor investment over innovation to cater to the government. Moreover, CEO PPI is positively correlated with performance volatility because the rapid performance improvement adopted over a short period to achieve political promotion are usually followed by a subsequent decline. Further analyses suggest that foreign institutional investors play a key role in alleviating the negative impact of CEO PPI.
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