Shareholder contestability and block ownership change : evidence from China

Abstract

Corporate governance literature stresses the role of a firm’s ownership structure in shaping firm strategies. The literature traditionally focuses on the consequences of a static ownership structure, while neglecting the changes that occur in ownership structure and the antecedents of those changes. This study investigates public firms’ ownership change in response to their CEO turnovers. We argue that CEO turnovers increase the uncertainties in the capital market about a firm’s value, future strategies and CEO ability. In light of the increased uncertainty, shareholders may restructure their shares. We identify four contingencies related to a firm’s information environment that can moderate the relationship between CEO turnovers and ownership changes: abruptness of CEO turnover, internal succession, outsider ownership, and listings on multiple stock exchanges. We test our theoretical model based on 2,128 matched Chinese public firms from 2000 to 2014 and find support for most of the predictions. Our study contributes to corporate governance research on CEO turnover and ownership structure.