A study of the effect of managerial entrenchment on CEO turnover in Chinese listed companies

The removal of poorly performing managers is a crucial mechanism by which owners maximize firm performance. However, managerial entrenchment can reduce the threat of CEO removal, even with evidence of poor performance. Managerial entrenchment refers to the extent to which fail to experience discipline from the full range of corporate governance and control mechanism. The presence of this extent reduces the restrictions on managers by stockholders´ dismissing or markets´ competing in corporate control, results to effect of managerial entrenchment. It is found in the empirical research that the higher the managerial entrenchment, the less possible the CEO turnover; the sensitivity of managers to corporate performance decreases with the increasing entrenchment level. Further examination by regression shows that there is difference in the effect of different entrenchment levels on managerial turnover. CEO turnover is less sensitive to performance in sample companies of high-level entrenchment; CEO turnover is more sensitive to performance in sample companies of low-level entrenchment.