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Research shows political ambitions of China's CEOs

Research on political ambitions of China's CEOs

16 November 2017

New research by Associate Professor Meijun Qian of the ANU Research School of Finance, Actuarial Studies and Statistics looks at the links between CEO performance, monetary incentives and political career progression in China.

The paper “Political Promotion, CEO Incentives, and the Relationship between Pay and Performance”, will be published in a forthcoming edition of the highly regarded journal Management Science.

Lead author Associate Professor Meijun Qian said the prevalence of managers becoming politicians is a relatively unique characteristic of China’s managerial labour market, with its large number of State-Owned Enterprises or SOEs.  The lesson delivered by the study on how career incentive affects CEOs managerial incentives however is applicable to any economies.

“It’s common in China for managers of SOEs to be considered for promotion to party leadership positions in the firm, or to positions as government officials. Our research explores whether this incentive substitutes for monetary incentives,” she said.

Dr Qian says that not all CEOs can make the leap from the corporate ladder to the political one

“When the government promote these CEOs to either party leader or government officials, they actually consider the CEO’s economic performance in running the corporations. So their corporate performance is one of the important determinants of whether they are politically promoted.”

“The other important factors that influence political promotion include their age, education, career experience, and the timing of whether a central government turnover is coming up. All these factors matter, along with the CEO’s own preference, resume and his connections. For those CEOs who see themselves as having a higher opportunity to be politically promoted, they could take lower monetary pay, in rewarding their corporate achievements and their monetary compensations are less sensitive to the economic performance.

“For those who have less opportunity for political promotion, they actually do require higher monetary pay, and the option type of payment linked to their performance so that their payment increases when firms do better. The monetary compensation would have to provide sufficient financial motivation for these CEOs, as if they were in the private sector.”

This research paper improves our understanding of how China’s state-owned sector has achieved significant growth, despite operating in a business environment that is not typically driven by significant monetary incentives, and is known for weak corporate governance.

Dr Qian says there is now scope to explore whether this leap from the corporate career ladder to a career in politics has any implication on managerial styles and risk taking behaviours.

For more information about this research, contact Associate Professor Meijun Qian.

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