Can Market‐Oriented Executive Recruitment and Evaluation Mechanisms Improve the Safety Performance of <scp>SOEs</scp> ? Evidence From the Reform of the Professional Manager System in China

ABSTRACT Using the reform of the professional manager system in Chinese state‐owned enterprises (SOEs) as a quasi‐natural experiment, this study examined how the external managerial labor market's governance effects influence corporate safety performance. Focussing on listed SOEs in eight high‐risk industries, we find that the reform significantly reduces employee fatalities, indicating that introducing governance from the external managerial market can effectively improve corporate safety performance. Mechanism analysis reveals that professional managers enhance safety performance primarily by improving internal control quality. Heterogeneity analyses indicate that professional managers have a positive effect on safety performance regardless of whether they are externally recruited or internally promoted, although this effect is stronger for externally recruited managers. Additional heterogeneity analyses further show that this positive impact is particularly pronounced in firms with professional managers who have shorter tenure, higher media attention, weaker pre‐reform managerial capability and lower governance foundations. Overall, our results suggested that the reform of the professional manager system can effectively enhance corporate governance and promote SOEs' healthy long‐term development.