Shock Anticipation: Voluntary Turnover by Foreign Directors in Response to Sanctions on Peer Firms

This paper proposes a new turnover mechanism, namely shock anticipation, which explains how the anticipation of potential shocks triggers voluntary turnover by individuals in organizations. Drawing on the context of US sanctions on China initiated in 2018, we analyse a sample of foreign directors (FDs) from Chinese-listed firms between 2014 and 2021. We suggest sanctions on peer firms lead FDs to anticipate potential sanctions on their own organizations and become concerned about the associated negative effects on their careers, which in turn motivates their turnover. We further argue that FDs at state-owned enterprises (SOEs) anticipate a higher risk and, consequently, are more likely to leave after observing sanctions imposed on their peer firms. In contrast, FDs with shorter career horizons are less inclined to leave as they perceive diminished damage to their future career. Our empirical results provide robust support for these hypotheses. This study enriches the literature on turnover and sanctions while also offering practical implications.