On the replacement of ST Analysis of company executives

Paper Keywords: replacement of senior management major shareholder changes Sf
Abstract: Over the years, the replacement of senior executives of foreign capital markets is an important element in the. China's securities market after ten years of development has taken shape, in the development process there have been a lot of executives replaced case. to 2,004 97-year study companies as Sf, Sf company executives investigated replacement of the main factors. The results show that stare company executives and the company replacing the changes are related to major shareholders, total net assets interest rate negatively correlated with net operating cash flow per share, the proportion of state-owned shares is not significantly related.

I. Background
Change on the issue of foreign executives in the company's Research focuses on operating results and senior management change the relationship between the analysis of operating results in the replacement of senior management role. Such as Kaplan (1994) in 1980 and 1988 on list <<Forbes>> of 119 Japanese companies for the study to test the company's performance and the relationship between the management change, the study found the possibility of replacement of senior management and stock returns, income level was negatively correlated; Anderson, Jayaraman and Mandelk trial 1992) to 1984 to 1989, Moody's report, 207 international companies for the Japanese sample, analysis of stock returns, asset returns and liquidity of the Chairman, CEO changes, the results show that the high-level changes in income and assets and liquidity negatively correlated with stock returns nothing. Martin and MCcormell (1991) studied the transfer of a controlling stake will affect the replacement of senior management, the results show that the poor operating performance of companies vulnerable to the transfer of a controlling stake, while holding transfer of the right will increase the possibility of replacing senior management.

China's securities market after ten years of development, has begun to take shape in the process of development there have been cases of a large number of senior management change, but a late start because of the securities market, experience in the accounting field Research methods to introduce time not long, together with the data collection is difficult, therefore, despite the large number of Western literature has been involved in issues related to replacement of senior executives, senior managers of the relevant issues of change is still small. ZHAO Shan (2001 ) selected before the end of 1993 175 listed non-financial listed companies in 150 companies, these companies collected for each year 1995 and 2000, chairman and general manager (CEO) of the movements of its business performance, market competition , ownership structure, acquisitions and the relationship between part-time chairman and general manager, the results show that the replacement of corporate performance have an important impact on the level, product market competition lead to higher rates of high-level replacement, ownership structure on the impact of high-level change is complex, the acquisition of led to a large number of high-level replacement, part-time chairman and general manager of the high turnover rate decreased. Gong Tamachi (2001) is listed before the end of 1993, 175 non-financial listed companies in the sample of 150 companies, the use of Logit Regression models examined the performance of listed companies in China and replace the relationship between high-level, results showed that the possibility of high-level replacement significantly negatively correlated with firm performance. Zhu Hongjun (2002) 1996 replaced a 1998 sample of the company executives, performance-based enterprise, the system analyzes the reasons for replacement of senior management and economic consequences, the result of poor operating performance that led to replacement of the main reasons executives.

March 16, 1998, the China Securities Regulatory Commission issued a <"On the status of listed company shares in particular exception handling during the notification>> to require Shenzhen and Shanghai Stock Exchange trading under the provisions of the listing of the abnormal situation stock transactions, in particular, the "special treatment" before the stock marked with "ST". Since 1998, China's listed companies have been increasing year by year the number of ST's home in 1998, ST companies have more than 20, while in 2004 ST has a total of 97, became a listed company in the group can not be ignored. listed company by the failure of ST means that, should one assume corresponding responsibilities, specific performance of senior management for the replacement. only in respect of 2004 This 97 ST companies, there are 41 executives replaced that year. Thus, ST replacement of the company executives have become an important Research topic.

In this paper, the 2004 sample of 97 ST companies to study the impact of ST company executives replaced the main factors. It should be stressed that the Research literature in the West generally, including those with senior management, chairman, president and CEO of three titles managers, and in the paper, especially senior management, chairman and general manager of two.

Second, the study design
(A) of the sample selection
December 31, 2004, a total of 97 in Shenzhen and Shanghai ST companies, the data can not rule out the two acquired companies, and then excluded six companies issued B shares, and then removing the five company data exception to the remaining sample of 84 companies, the use of Logisti. regression model to study effects of these corporate executives to replace ST main factors.

(B) of the variable definition
This paper studies ST company executives and major shareholders replacement changes, company performance, the relationship between ownership structure, mainly related to five variables.

1. The explained variable (Y)
Since this paper is to study the replacement of ST company executives and the relationship between a number of factors, therefore, the introduction of dummy variables Y = O, lo, chairman and general manager have not been replaced when the Y = 0; two who were in a replacement or two have been replaced, Y = to
2. Explanatory variables
(1) whether a large shareholder changes (X,). China's securities market has developed over a decade, the country's industrial structure adjustment and the capital market behavior in the M & A gradual active, controlling shareholders of listed companies in the replacement has become more common. This will change the definition of major shareholders as the first major shareholder changes, including the control of the main change is a legal entity from the state and from corporate to corporate transformation. We also introduce dummy variables X, b 0,1. did not occur when the major shareholders transform, X, = 0; place transform, X, = to
(2) The operating results. Measure of operating performance of an enterprise to choose a large number of indicators, including earnings per share, return on equity, return on assets, etc., different indicators to measure performance have focused on the time. As This paper mainly on the overall profitability of the business executives replacement of impact, therefore, the total assets of this profit margin choice (Xz) as the company's key indicators of performance measures. In addition, due to net operating cash flow per share reflects the company's operating cash flows situation, and that the indicators are not easily manipulated by management to be more truly reflect the company's operating results, therefore, the paper selected net operating cash flow per share (Xs) as a measure of operating performance of the other indicators.

(3) ownership structure (X4). A different ownership structure and corporate stakeholders to shareholders have different incentives and constraints, and thus an important impact on corporate governance. Effective internal control mechanism should be able to do enable the "good" management were to replace "bad" managers. In China, listed companies are divided into state-owned shares, legal person shares and tradable shares, the controlling shareholder of the mostly state-owned shares or corporate shareholders. state-owned shares typically composed of government, the state-owned asset management agencies or state-owned enterprises hold, due to the de facto property rights of state-owned shares "absence" in the status of state-owned shares in companies holding accounts easily lead to insider control, which means that these companies are less likely to replace the top. We choose the total share capital of the state-owned shares the proportion of (Xa) as explanatory variables, to reveal the ST companies change ownership structure and the relationship between executives.

(C) hypothesis
Assuming 1: ST replacement company executives and large shareholders to change a positive correlation, that is, when a change in major shareholders, executives increase the likelihood of replacement.


Chinese listed companies there is "dominance" phenomenon, and the big shareholders are usually the spokesman for the government or the government, therefore, the replacement of major shareholders is an agent of change from the government to another agent, will not have the behavior of enterprises have a huge impact. However, government departments and agents has its own interests, the formation of a variety of interest groups, these interest groups and the competition between the allocation of resources may affect the control of the business behavior, and thus reflected in the appointment or replacement of senior executives on.

Assumption 2: ST replaced senior management negatively correlated with corporate performance, that is the better operating results, the smaller the possibility of replacing senior management; performance worse, the greater the possibility of change.

In theory, good or bad results of operations as ability to judge a manager and an important criterion for degree of diligence, and, on the performance of the company's relationship with senior management changes, foreign Research has shown that the better performance of the company, senior management place the smaller the possibility of change; the worse performance of the company, a change in top management the greater the likelihood. established to test the hypothesis of capital market efficiency in this regard.

Assumption 3: ST senior staff replaced the proportion of state-owned shares and negative correlation, that is, the greater the proportion of state-owned shares, the smaller the possibility of change; smaller proportion, the greater the possibility of change.

As mentioned earlier, in China, controlling shareholders of listed companies are mostly state-owned shares or corporate shares, and the general state-owned shares by the government, state agencies or state-owned asset management holding company, as the de facto property rights of state-owned shares "absence." Therefore, , the greater the proportion of state-owned shares, the more easily lead to insider control, the more the company's internal governance structure is not perfect, which means that these companies the possibility of replacing the lower level.

Third, empirical analysis
(A) ST company executives preliminary analysis of reasons for the replacement
Shenzhen and Shanghai in 2004, a total of 97 ST companies, including replacement of 41 senior executives in the year, accounting for 42.27% of the total, some companies also replaced the chairman and general manager. We reviewed the 41 companies replacement of senior executives in the disclosure of the announcement, the company disclosed that the replacement of a variety of reasons, through the sorted and summarized in Table 1.

Links to Free Download Center http://www.hi138.com paper can be seen from Table 1, ST 2004, a total of 26 company to replace the chairman, but only 19 notice of the reasons for change; the same period, a total of 30 companies replaced the general manager, and only 23 announcement of the cause of change. Overall, ST companies own the main reason for the disclosure of executive staff for the changes in the original, or resign. However, whether these reasons for the replacement of ST executives the real reason, just from the information disclosed is not known. If a company's poor operating performance because executives were "fired", the company will disclose the real reason, it is worth studying. Therefore, to analyze executive replaced the real reason, we use the ST companies in 2002 and 2003 financial data for analysis.

(B) regression analysis
In this paper, the ST may affect the replacement of senior management factors, the establishment of the following model:
In (Yl 1 a Y) = do + a, x, + az x2 + as xs + a4 x4 + e
Y: 2004 �� whether to replace the company executives ST., Chairman and general manager have not been replaced when the Y 20; both been replaced in one or two persons who have been replaced, Y two to
X,: 2003 �� ST is a major shareholder changes. The introduction of dummy variables X, b 0,1. When the transformation does not occur when the major shareholder, X, the second Chou Fasheng transform, X, the second to
Xz: Total assets profit margin (net profit / total assets at the end). In this paper, in 2002 and 2003, net profit margin of the simple average of total assets.

Xs: net operating cash flow per share. In this paper, in 2002 and 2003 net operating cash flow per share, a simple average.

Where: 2003 ST shares of Chinese companies the proportion of the total share capital.

.: Random error term.

Logistic regression model of this paper to analyze the results in Table 20

According to the regression results can be seen, ST replacement company executives and big shareholders changes significantly correlated with total assets profit margin was negatively correlated with net operating cash flow per share, the proportion of state-owned shares and the type of audit opinion is not significantly related to .

(C) interpretation of the results
1.ST replacement company executives and major shareholders to change a positive correlation, that is, a change in major shareholders, the increased possibility of replacement of senior management, which is consistent with hypothesis 1.

Major shareholders of listed companies, mainly through personnel assigned to or group between the company and executives of listed companies and other ways to protect the holding part-time realization of the right. The absolute controlling shareholder status, resulting in a listed company in the "dominance" situation, this absolute position in the board of directors or controlling shareholders of the General Assembly is its head, causing serious board of directors or general meetings of the "one-man" phenomenon. as personnel arrangement is to achieve control over one of the most important form, in which "mouthpiece" of the decision-making process, the major shareholders of listed companies to appoint senior executives to become the inevitable result, but such absolute control by the major shareholders of the "mouthpiece" of the decision-making process will also lead to a substantial shareholder as a result of changes in high management personnel replacement.

2.ST replace senior management and the company's total assets, net profit margin was a significant negative correlation, the lower margin of the total assets, the replacement of the greater likelihood of senior management; total assets of the higher net interest margin, the replacement of senior management the less likely. This is consistent with the hypothesis 2.

According to foreign research results, the company's operating performance is the replacement of key executives, such as Dai Nisi (1995) found that poor operating results will occur mandatory replacement of senior management. In China, although different types of enterprises examination performance of different departments, but the increasing emphasis on the operators to carry out performance appraisal is an indisputable fact. Since the results of operations of the regulatory department of the operator's examination to occupy this important position, then the regulatory body for the operators to make removal replacement decisions, results of operations should also have a strong influence. regression results also show poor operating performance is a key factor in replacement of senior executives, and Dai Nisi (1995) study were similar, which explains Listed Top Executive Turnover in the role of business performance and the Western markets there is great consistency.

3.ST replace senior management and corporate net operating cash flow per share, the correlation was not significant.

Measure the performance of an enterprise, a large number of targets to choose from, such as listed companies are more familiar with earnings per share, return on equity, return on assets, etc., which can reflect a more integrated business performance and financial assessment recommended by the Ministry of the index system of enterprise performance, the financial benefits status (including net interest and net assets of total assets yield) as the most important indicators are. Therefore, there are few listed companies based on net operating cash flow per share to determine whether to replace executives.

4.ST replace senior management and the proportion of state-owned shares is not significantly related.

From outside view, as most of the ST companies are controlled by the state, the larger the proportion of state-owned shares, the shares can be traded only a small part, even if the acquisition of all of the outstanding shares of the company shares, they can not achieve the acquisition of listed The purpose of the company, not to mention the domestic capital market is developed, it is difficult to raise funds needed to purchase large, so the company does not exist outside the company control over the market, but also control over the competition does not exist, making company executives out a threat to be fired. In addition, from the internal point of view, in China, controlling shareholders are mostly state-owned shares or corporate shares, while state-owned shares typically composed of government, the state-owned asset management agencies or state-owned enterprises hold, because state-owned shares in fact of property rights "absence", the company's internal governance structure is not perfect, so will the lack of supervision of senior executives, leading to replacement of ST company executives associated with the proportion of state-owned shares is not significantly.

Fourth, the conclusions and recommendations
This paper analyzes the ST companies in 2004, the reasons for replacement of senior management. Study found that: From the reason disclosed terms, resignations and job transfers are the most used excuse. However, this in-depth analysis from the point of view, ST a major shareholder change and the previous year's net profit margin is the total assets of the company executives ST important reason for replacement. At the same time the test results show that the replacement of ST company executives and net operating cash flow per share, the proportion of state-owned shares no significant correlation.

Based on the above analysis and conclusions obtained, we propose the following policy recommendations: (1) In order to form the company's executives adequate external oversight mechanisms, the need to develop and improve our marketing manager. Manager will foster the market help to improve corporate performance management in the company's role in the appointment and removal, so as to achieve "merit" objective. (2) change the company's incentive mechanism. the actual control of state-owned shares held by the hands of the executive authorities, leading to the control of state-owned shares administrative officer or the right to be manipulated by managers of the company, which could lead to owners lack of managers with an effective performance evaluation, and serious "internal control" issue. To change this situation, on the one hand to design a scientific performance evaluation index system, to focus on business performance manager's performance appraisal and reward and punishment to achieve a degree; the other hand, substantial increase in the level of management holdings to reduce agency costs. (3) to improve the company's ownership structure reduce the proportion of major shareholders holding, in order to reduce internal control problems. This needs to reduce the government in a market economy the role of direct participation to achieve the Government's over-involvement will enhance the company's agency problems, undermine the efficiency of corporate management. by improving the company's ownership structure, will further strengthen the role of the board of directors, senior managers to improve internal oversight, corporate governance so as to promote a virtuous circle. Links http://www.hi138.com Research Papers Download