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Korean Journal of Policy Studies
Graduate School of Public Administration, Seoul National University

Korean J. Policy Stud. 2020; 35(2):47-76

pISSN: 1225-5017, eISSN: 2765-2807

DOI: https://doi.org/10.52372/kjps35203

Article

The Longer the Better? The Impact of Internal vs. External CEO Hires and Tenure on Organizational Performance: Evidence from the Banking Industry of the Republic of Korea*

Seokhwi Moon1, Sangin Park2
1Seokhwi Moon, the first author, is a PhD candidate in the Graduate School of Public Administration at Seoul National University. E-mail:.slugnoid@snu.ac.kr
2Park Sangin, is a professor, in the Graduate School of Public Administration at Seoul National University. E-mail:. sanpark@snu.ac.kr
*Corresponding Author: E-mail: sanpark@snu.ac.kr.

© Copyright 2020 Graduate School of Public Administration, Seoul National University. This is an Open-Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommons.org/licenses/by-nc/4.0/) which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited.

Received: Jun 30, 2020; Revised: Jul 06, 2020; Revised: Jul 28, 2020; Accepted: Aug 10, 2020

Published Online: Aug 31, 2020

Abstract

This study investigates the effect of internal vs. external CEO hiring and cumulative presidency on bank profitability (return on assets, return on equity) and asset quality (substandard loans, nonperforming loans) in the Republic of Korea’s banking industry. We also try to find evidence of a nonlinear effect of long-term CEO tenure to check whether it gradually increases or decreases over time. Using the panel data of five state-owned banks, six private banks and six local banks from 2000-2019, we found that CEOs hired from the inside improve performance more than those hired from the outside and that CEOs with long tenures do as well. However, an investigation of a non-linear term of tenure yields an inverted u-curve, meaning the effect of longer tenure dissipates over time. These results thus offer reasons to avoid the short-termism that prevails today. The coefficient of the main regressors remained mostly the same with several robustness tests.

Keywords: CEO turnover; CEO origin; CEO tenure; Short-termism