‘Following Established Rules’ or ‘Abandoning the Old for the New’: The Impact of Former CEO’s Whereabout on the Strategic Change of a SOE

Abstract

Abstract: For a long time, administrative logic has played a dominant role in the operation of state-owned enterprises in China. The existing researches mostly analyze how the decision of the current CEO of a SOE affects strategic change to reveal the leading role of administrative logic, without considering the reference value that can be gained from former CEO. This paper tries to prove the administrative logic embedded in the operation of SOEs. At the same time, we also try to provide some evidence that economic logic is gradually playing a leading role in the operation of SOEs. Based on the social learning theory from the perspective of institutional logic, this paper focuses on how the new CEO decides whether to follow the strategy of the former CEO according to the former CEO’s whereabout. Using a sample consisting of A-share listed SOEs from 2005 to 2017, we find that, if the former CEO is promoted, the new CEO is more inclined to imitate the strategic decisions of the former CEO without implementing changes, but if the former CEO is demoted, the new CEO tends to avoid the behavior that led to the demotion of the former CEO and implement strategic changes to a greater extent. Meanwhile, the age of new CEO weakens the negative impact of former CEO’s promotion on strategic change. Environmental uncertainty strengthens the positive impact of former CEO’s demotion on strategic change. Further research finds that the degree of strategic change implemented by the new CEO based on the former CEO’s whereabout is conducive to the improvement of corporate performance, indicating that both administrative logic and economic logic are embedded in the operation of SOEs at the same time. In addition, the influence of the former CEO’s whereabout on strategic change is significant before the new round of SOE reform, but less significant after the reform, which is a reflection of the ongoing transition from administrative logic to economic logic.

Key words: SOEs, former CEO’s whereabout, institutional logics, social learning theory, strategic change

Wang Kai, Wu Lidong, Xue Jiaan, Xue Kunkun. ‘Following Established Rules’ or ‘Abandoning the Old for the New’: The Impact of Former CEO’s Whereabout on the Strategic Change of a SOE[J]. Management Review, 2022, 34(10): 222-234.

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