Does Management Turnover Improve the Performance of the Distressed Firms?

The theory of the market for corporate control argues that management turnover can improve the firms´ performance. Given the institutional background of concentrated ownership structure and weak investor protection in China, we conjecture that the top executives mainly cater to the controlling shareholder lacking of independence. Consequently, top management turnover plays a passive role in corporate governance in China. Using a sample of the special treatment companies, the empirical results show that the likelihood of management turnover is negatively associated with the firms´ performance prior to the special treatment, while management turnover cannot improve the firms´ performance and cannot alleviate the tunneling by the controlling shareholder after the special treatment.