Can a powerful CEO avoid involuntary replacement?—An empirical study from China

It is worth noting that some companies in the sample had changed their major businesses during the examined period. Thus, the industrial distribution of the sample companies was different in different years. In addition, the Guidelines on Industry Classification of Listed Companies, issued by the China Security Regulatory Commission (CSRC) in 2001, was used to class the sample companies into corresponding industries. The sample companies from non-manufacturing industries are classified into categories, while the sample companies from the manufacturing industry are classified into sub-categories because listed companies are mainly in the manufacturing industry.

According to the Guidelines for Establishing Independent Director System in Listed Firms issued by the CSRC on August 16, 2001, each listed firm in China would be required to have at least two “independent directors” on its board of directors by June 30, 2002, and by June 30, 2003, at least one third of the board members would be required to be “independent directors.” Also, it regulates that an individual must meet the following conditions to be considered “independent:” (1) neither the individual nor his or her relatives (including spouses, parents, children, siblings, parents-, sons- and daughters-in-law, spouses of siblings, and siblings of spouses) work for the listed firm or its subsidiaries; (2) the individual does not directly or indirectly own more than 1% of the stock of the listed firm; (3) neither the individual nor his or her close relatives (including spouses, parents, and children) are among the largest ten shareholders of the listed firm; (4) neither the individuals or his or her close relatives work for a company that owns more than 5% of the stock of the listed firm; and (5) neither the individual nor his or her close relatives work for one of the largest five shareholder companies.