Governance with Multiple Firm Objectives: Evidence from Top Executive Turnover in China Comment by Xueping Wu City University of Hong Kong

Major Findings of the Paper ■ The relation between CEO turnover and firm performance is different between profit-making firms and loss-making firms  There is a negative relation between CEO turnover and ROA for loss-making firms, but not for profit-making firms  There is a negative relation between CEO turnover and the change in ROA for profit-making firms, but not for loss-making firms

■ Interpretation : Firms’ objectives are multi-dimension  Loss-making firms are more concerned with how to avoid low levels of profitability  Profit-making firms are more concerned with how to maintain the current level of profitability ■ Contribution of the paper  Differentiating the CEO turnover-performance relation between loss-making firms and profit-making firms  Examining the link between CEO turnover and the change in profitability (in addition to profitability level)

An Alternative Interpretation Prior studies observe that the negative relation between managerial turnover and firm performance is mostly evident with low levels of company performance. Intuition: Only poorly-performing CEOs face the threat of dismissal, while well-performing CEOs are rewarded with incentive pay. This link derives from different incentive schemes, but not from multiple objectives of firm performance.

Suggestion Observation: 85% of the total sample are profit-making firms. The total sample can be divided into two subsamples based on the median ROA, and examine how the CEO turnover- performance relation differs between the two subsamples. This practice may help: (i) to avoid the very small sample size for loss-making firms (Table 9); (i) to clarify whether the distinction between profit-making and loss-making really matters.