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Management Turnover and Accounting Information in Industrial Organization of Chinese Government: Evidence from China’s SOE
Fang Hu, City University of Hong Kong
ABSTRACT: This paper explores the accounting measures possible used by government to select and dismiss managers in state-owned enterprises (SOEs). As Chinese reform emphasizes economic performance and regional competition, local government selects and evaluates managers in its affiliated SOEs based on two principle accounting measures of firm performance, i.e. firm-specific performance and regional relative performance (RPE-based performance). Following the theory of yardstick competition (Shleifer, 1985), this paper also provides empirical evidence that local government relies on more RPE-based accounting measure of performance to make dismissal decisions if the SOE is a monopolistic firm/in local economy. Because RPE-based accounting measure breaks up inefficiency in local monopoly and provide stronger incentive scheme for local monopolistic SOE when its performance is compared with regional competitors, instead of depending on its own performance.
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