The dark side of political promotion incentives: Evidence from firm performance

Xinru Bo, Fan, Xiaomin (Michelle) and Aiguo Kong

Finance Research Letters, 2023, vol. 51, issue C

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.

Keywords: Political promotion incentive; State-owned enterprise; Firm performance; Institutional investor (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322005591

DOI: 10.1016/j.frl.2022.103382

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