The effect of chief executive officer turnover on performance of commercial banks in Kenya
Abstract
Employee turnover is the movement of people into and out of the organization. CEO
turnover is the frequency with which CEOs are replaced over a given time period.
Recently engaged employees are more likely to leave than long serving employees.
Separations and their consequent replacement can be surprisingly expensive. Studies
conclude that turnovers are often treated as dependent variables and the level of
turnovers are higher in companies with low corporate performance. Longer CEO
tenure may be associated with more control of the firm and greater influence on the
board, thereby reducing the likelihood of forced CEO turnover. CEO entrenchment
makes him dominate the board and consequently pursue costly pet projects and
demand compensation packages that benefit them at the expense of shareholders. The
objective of this study was to find out whether CEO turnover affects the performance
of Commercial Banks in Kenya. The study adopted a descriptive cross-sectional
research design. The population of the study was all the 43 Commercial Banks in
Kenya and a census was carried out. Both primary and secondary data was collected
and analysed using descriptive statistics and regression analysis. The results indicate
that the relationship between CEO tenure and organizational performance is positive
though the relationship is not very strong and not significant since the P value is
greater than 0.05. R square, the Coefficient of Determination is 0.06 indicating that
only 6% of turnover falls on the regression line. The overall F test for the null
hypothesis is 1.9 indicating that there is evidence to reject the null hypothesis thus
increased CEO turnover does not impact on Commercial Bank's performance. The
findings of the study indicate that CEO turnover in commercial banks does not impact
on the overall performance of the same institution. These results are inconsistent with
other studies that document an inverse relation between the likelihood of Chief
Executive Officer (CEO) turnover and firm performance. Other studies have
concluded that this relationship is equivocal. The study concludes that performance of
the firm reveals information about a CEO’s ability to create value for shareholders.
The researcher recommends that Commercial banks should review their policies on
CEO tenure and turnover and align them to the interests of the shareholders.
Publisher
University of Nairobi