Performance-induced CEO Turnover in China

Analyzing performance-induced CEO turnover offers insights into the turnover-performance relationship and the effectiveness of corporate governance. Correctly identifying forced CEO turnover is fundamental. Breaking from the predominant subjective approach, this study classifies performance-induced turnover using objective data, focusing on an emerging market. Using Chinese A-share listed firm data, we estimate the probability of performance-induced CEO turnover. Then, we find that the likelihood of performance-induced CEO turnover declines significantly as a firm’s return on assets (ROA) increases. Specifically, when firm performance falls below the fourth ROA decile, most CEO turnovers—both forced and voluntary—are performance-induced. We report that industry conditions have a greater effect than stock market cycles on the forced proportion of performance-induced CEO turnovers. Uncertainty shocks reduce performance-induced turnover, while policy shocks decrease it by weakening market competition. Furthermore, delisting risk increases the likelihood of performance-induced turnover while state-owned enterprises have a lower probability of performance-induced turnover.