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Sales Maximization or Profit Maximization? How State Shareholders Discipline their CEOs in China


Corresponding author: Sonia Wong, Department of Finance and Insurance, Lingnan University, 8 Castle Peak Road, Tuen Mun, Hong Kong. Tel: (852)26168159, Fax: (852)24621073, email:


This study examines the determinants of Chief Executive Officer (CEO) turnover in Chinese state-owned firms. Based on a sample of 1 555 turnover cases among listed firms in China during the period 1999–2003, we obtain three main results. First, CEO turnover is negatively related to the sales performance but not the profitability of the core business. Second, the negative relationship between CEO turnover and sales is stronger for firms with excessive employment and higher organizational slack. Third, there is a significant post-turnover increase in sales but a decline in profitability of the core business. Overall, our evidence suggests that state shareholders put a greater emphasis on sales generation than on profitability when they monitor their CEOs.