Who Shall Leave? How CEO Preference and Power Affect Executive Turnover in Chinese Listed Companies

Abstract

Manuscript Type: Empirical Research Question/Issue: This study investigates the effect of CEO preference proxied by CEO-executive demographic dissimilarity on non-CEO executive turnover, and how such effect is moderated by CEO power-related variables (the CEO's founder status and CEO ownership) and firm performance in a sample of Chinese listed companies. Research Findings/Results: The results show that when CEO-executive demographic dissimilarity is inconsistent with social norms (e.g., the non-CEO executive is older and has longer team tenure than the CEO), the non-CEO executive is more likely to exit from the TMT. This association is strengthened by the CEO's founder status and low firm performance, whereas it is weakened by CEO ownership. Theoretical/Academic Implications: The theory of organizational politics proposes that competition among top managers plays an important role in the internal monitoring of firms. In contrast with most literature centering on the role of non-CEO executives in CEO turnover and succession, this study focuses on what kind of non-CEO executives CEOs are likely to dismiss and demonstrates how this process is influenced by CEO power and low firm performance. Practitioner/Policy Implications: Given a CEO's intention to dismiss a non-CEO executive when CEO-executive demographic dissimilarity is inconsistent with social norms, particularly when the CEO is powerful and firm performance is low, the board of directors should keep an eye on any conflict of interests or power struggle between the CEO and the non-CEO executive. The CEO should also be prudent in making executive turnover decisions, because the implications of dismissing such a non-CEO executive for reasons relating to firm performance are largely unknown.