Please Wait! Your file will start to download within 10 seconds automatically. Otherwise click here Download

The Impact of Corporate Governance Chief Executive Officer (CEO) Succession Plan on Banks Financial Performance in Nigeria

Author(s)

Osho Augustine E , Afolabi, Matthew B ,

Download Full PDF Pages: 75-94 | Views: 1295 | Downloads: 432 | DOI: 10.5281/zenodo.3483465

Volume 7 - April 2018 (04)

Abstract

This paper examines   the impact of corporate governance Chief Executive Officer (CEO) succession plan on banks financial performance in Nigeria. The increased incidence of bank failure in the recent period generated the current literature on quality of bank assets and also emphasized good governance as means of achieving banks objectives. This study made use of secondary data obtained from the financial reports of nine (19) banks for a period of ten (10) years (2006- 2016). Data were analyzed using multiple regression analysis. Findings revealed that Succession planning in the shadow of a long-term CEO contract is confounded not just by the prospect of losing some of the best possible candidates, but also by reaffirming the importance of the CEO in choosing a successor. It is recommended that bank boards should formulate succession plans to assure that the banks operate smoothly and also be aware of the benefits of having independent directors on the board.

Keywords

Agency theory, Chief Executive Officer (CEO),  Corporate Governance, Financial Performance, Stakeholders theory, Succession Plan

References

i.        Abor, J., & Biekpe, N. (2007). Corporate governance, ownership structure and performance of SMEs in Ghana: implications for financing opportunities. Corporate governance, 7(3), 288-300.

ii.      Adegbite, E. (2012). Corporate governance in the Nigerian banking industry: Towards

a.      governmental engagement. International Journal of Business Governance and

b.      Ethics, 7, 209-231. doi:10.1504/IJBGE.2012.050039

iii.    Adegbite, E., Amaeshi, K., & Amao, O. (2012). The politics of shareholder activism in Nigeria. Journal of Business Ethics, 105(3), 389–402.

iv.     Adegbite, E., & Nakajima, C. (2012). Institutions and institutional maintenance implications for understanding and theorizing corporate governance in developing economies. International Studies of Management and Organization, 42(3), 77–91.

v.       Adegbite, E. and Nakajima (2011) Ccorporate governance and responsibility in Nigeria. International Journal of Disclosure and Governance. Vol.8 Page 252-271

vi.     Aguilera, R. V., Filatotchev, I., Gospel, H., & Jackson, G. (2008). An organizational approach to comparative corporate governance: Costs, contingencies, and complementarities. Organization Science, 19(3): 475–492.

vii.   Allen, F. And Herring, R. (2001), “Banking regulations versus securities market regulations”, Wharton Financial Institutions Center, No. 29. 

viii. Amran, A., Periasamy, V., & Zulkafli, A. H. (2014). Determinants of climate change disclosure by developed and emerging countries in Asia Pacific. Sustainable Development, 22, 188-204. doi:10.1002/sd.539

ix.     Animashaun, T.O.G., Oyeneyin, A.B. (2002). Law of Succession, Wills and Probate in Nigeria. Lagos: MIJ Professional Publishers.

x.      Barber B. M. and J. D. Lyon. 1997. “Detecting Long-Run Abnormal Stock Returns: The Empirical Power and Specification of Test Statistics” Journal of Financial Economics. 43:341-372.

xi.     Basel Committee on Banking Supervision (1999). “Enhancing corporate governance for banking organizations”.

xii.   Baysinger, B. & Hoskisson, R.E. (1990). “The Composition of Boards of Directors and Strategic Control: Effects on Corporate Strategy”. The Academy of Management Review, Vol. 15(1), pp. 72-87.

xiii. Beatty, R. E. & Zajac, E. J. (1994), “Managerial incentives, monitoring, and risk bearing: A study of executive compensation, ownership, and board structure in initial public offerings”. Administrative Science Quarterly, Vol. 39, pp. 313-335.

xiv. Bebchuk, L. A & Weisbach, M. S. (2010). The State of Corporate Governance Research. The Review of Financial Studies, Volume 23, Issue 3, 939–961. https://doi.org/10.1093/rfs/hhp121

xv.   Behn, B.K., Riley, R.A. and Yang, Y. (2005), “The value of an heir apparent in succession planning”, Corporate Governance: An International Review, Vol. 13, pp. 168-177.

xvi. Bhagat, S & Black, B. (2002). The non-correlation between board independence and long- term   firm performance, Journal of Corporate Law, 27(2), 231-274. 

xvii.                       Black, B., Love, I. and Rachinsky, A. (2006), Corporate governance indices and firms’ market values: time series evidence from Russia, Emerging Markets Review 7, 361-379.

xviii.                     Black, B., Jang, H., & W. Kim, 2003. Does Corporate Governance Affect Firm Value?, Working paper 327, Stanford Law School.

xix. Brickley, J. A., Linck, J. S., & Coles, J. L. (1999). What happens to CEOs after they retire? New evidence on career concerns, horizon problems, and CEO incentives. Journal of Financial Economics, 52, 341–377.

xx.   Central Bank of Nigeria (CBN) (2006). C.B.N Code of corporate governance for Banks in Nigeria postconsolidation. Assessed on March 1st..http://www.google.com.ng/search.

xxi. Central Bank of Nigeria (CBN) (2004). Consolidating the Nigerian Banking industry to meet development challenges of the 21st century.

xxii.                       Ciurim S. (2013). KCB eyes diaspora for new managing director position - Business Daily

xxiii.                     https://www.businessdailyafrica.com › Home › Corporate

xxiv.                      Clarke, T. (2004), Theories of Corporate Governance. The Philosophical Foundations of Corporate Governance, Routledge, Taylor & Francis Group, London, New York.

xxv.                        Conyon, M. J., & He, L. (2011), ‘Executive compensation and corporate governance in China’, Journal of Corporate Finance, 17(4), 1158–1175. 

xxvi.                      Dalton, D.R., Daily, C.M., Johnson, J.L., & Ellstrand, A. E. (1998). Number of Directors and Financial Performance: A Meta-Analysis. Academy Management Journal, 42, 674-676.

xxvii.                    Davies, A (1999), “A Strategic Approach to Corporate Governance”, Aldershot: Gower Vol. 59, pp. 34-37.  

xxviii.                  Demb, A. and Neubauer, F. (1992). “The corporate board”. New York: Oxford University Press.

xxix.                   Djankov, S., & Hoekman, B. (2000).Foreign Investment and Productivity Growth in Czech Enterprises.The World Bank Economic Review, 14(1), 49-64.

xxx.                        Donaldson, L. & Preston, L. E. (1995).The stakeholders theory of the corporation: Concepts, .evidence and implication. Academy of Management Review, 20 (1) 65-91.

xxxi.                   Drobetz, W., Schillhofer, A. and Zimmermann, H. (2004), ‘Corporate Governance and Expected Stock Returns: Evidence from Germany’, European Financial Management, 10, 267-293.

xxxii.                    Drobertz, W., Schillhofer, A., & Zimmerman, H. (2003). Corporate governance and expected stock returns: Evidence from Germany. Working Paper. University of Basel, Basel.

xxxiii.              El Mehdi, I. K. (2007). Empirical evidence on corporate governance and corporate performance in Tunisia. Corporate Governance: An International Review, 15, 1429-1441.

xxxiv.                  Fama. E. & Jensen, M. (1983). “Separation of ownership and control”. Journal of Law and Economics, 26, pp. 301-326.

xxxv.                    Fama, E.F. (1980), “Agency Problems and The Theory of the Firm”. Journal of Political Economy, Vol. 88, pp. 288-307.

xxxvi.                  Farrell, K. A & Whidbee, D. A.  (2002). Whidbee, Monitoring by the financial press and forced CEO turnover. Journal of Banking and Finance 26 (2002), pp. 2249–2276.

xxxvii.             Fich, E. M. (2005). Are some outside directors better than others? Evidence from director appointments by Fortune 1000 firms, Journal of Business 78, 1943–1972.

xxxviii.          Filatotchev, I., & Allcock, D. (2013). Corporate governance in IPOs, in: Wright M, Siegel D, Keasey K., Filatotchev I (Eds.), The Oxford Handbook of Corporate Governance, 421-448. Oxford: OUP.

xxxix.                  Filatotchev, I., Jackson, G., & Nakajima, C. (2013). Corporate governance and national

a.      institutions: A review and emerging research agenda. Asia Pacific Journal of

b.      Management, 30, 965-986. doi:10.1007/s10490-012-9293-9.

xl.     Filatotchev, I., & Wright, M. (2011). Agency perspectives on corporate governance of

a.      multinational enterprises. Journal of Management Studies, 48(2), 471-486.

b.      doi:10.1111/j.1467-6486.2010.00921.x

xli.   Freeman, R. E. (1984). “Strategic Management: A stakeholder Approach”. Boston, MA: Pitman.

xlii. Gregory, H.J. and M.E. Simms (1999), ‘Corporate Governance: What it is and Why it Matters,’ The 9th International Anti-Corruption Conference (Kuala Lumpur).

xliii.                    Gupta, P., Kennedy, D. and Weaver, S. (2009), Corporate Governance and Firm Value: Evidence from Canadian Capital Markets, Corporate Ownership and Control Journal 6(3), 293-307.

xliv.                       Hart, O. (1995), Firms, contracts, and financial structure, Oxford University Press, Oxford.

xlv. Harford, J., Mansi, S. A., & Maxwell, W. F. (2012). Corporate governance and firm cash

a.      holdings in the U.S. Corporate Governance, 107-138. doi:10.1007/978-3-642-

b.      31579-4_5 

xlvi.                       Hyland, A. & Hooper, N. (2005). ‘Contract Chess: Banking Kings Look to the Endgame’, Australian Financial Review, 4 March: 1.

xlvii.                  Jackling, B. &  Johl, S. (2009). Board structure and firm performance: evidence from India’s top companies. Corp. Gov. Int. Rev. 17, 492---509.

xlviii.                   Jagannathan, R., Srinivasan, S. B., 1999. Does product market competition reduce agency costs? North American Journal of Economics and Finance 10, 387-399.

xlix.                       Jiraporn, P., Davidson III, W.N., DaDalt, P. & Ning. Y. (2009a). Too busy to show up? An analysis of directors’ absences. The Quarterly Review of Economics and Finance, 49, 1159-1171.

l.       Jiraporn, P., Manohar, S. & Lee, C.I. (2009b). Ineffective corporate governance: Director busyness and board committee memberships. Journal of Banking & Finance, 33, 819-828.

li.      Jossey, B. (2005). Ending of succession crisis. Harv Bus Review; 83(2):72-81, 147.

lii.    Jeffrey, A. A., Fennell, M. L & Halpern, M. T. (1993). “Leadership Instability in Hospitals: The influence of Board – CEO Relations and Organisation Growth and Decline”. Administrative Science Quarterly, Vol. 38.

liii.  Jensen, M. C. (1993). The modern industrial revolution, exit and the failure of internal control systems. Journal of Finance, 48 (3), 831–880.

liv.   Jensen, M. C. (1986). “Agency costs of free cash flow, Corporate Finance and take over.” American Economic Review Proceedings. Vol 76, 323-29.

lv.     Jensen, C. M., Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership. Journal of Financial Economics, 3, 305-360.

lvi. Kama, U. and Chuku, C. (2009). “Corporate governance of banks in Nigeria: determinants of board of directors’ effectiveness”, Economic and Financial Review, Vol. 47 No. 1, pp. 17-43.

lvii. Kesner, I. F., & Sebora, T. C. (1994). Executive succession: Past, present and future. Journal of Management, 20, 327–372.

lviii.                       Klapper, L. and Love, I. (2004), “Corporate governance, investors protection and performance

a.      in   emerging markets”, Journal of Corporate Finance, Vol. 10 No. 5, pp. 703-23. 

lix.               [Google Scholar] [Crossref] [Infotrieve]

lx.     Krejcie, R. V., & Morgan, D. W. (1970). Determining sample size for research activities. Educational and Psychological Measurement, 30, 607-610.

lxi.   Kyereboah-Coleman A. and Biekpe N. (2006), Do boards and CEOs matter for bank performance? A comparative analysis of banks in Ghana, Corporate Ownership and Control Journal. 4, (1), 10-15.

lxii. Kyereboah-Coleman, A., & Nicholas- Biekpe, N. (2005). Corporate Governance and the performance of Microfinance Institutions (MFIs) in Ghana, Working paper 4330-05, UGBS, Legon.

lxiii.                       La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R. W., 2002. Investor protection and corporate valuation. Journal of Finance 57, 1147-1170.

lxiv.                     Liang, N., & Li, J. (1999). Board structure and firm performance: New evidence from China’s private firms. The Academy of Management Annual Conference, Chicago, USA, August 7-10, 1999.

lxv. Lipton, M., & Lorsch. J. (1992). A Modest Proposal for Improved Corporate Governance. Business Lawyer, Vol.48, No. 1, Pp.59-67.

lxvi.                       Mace, M. (1971), “Directors: Myth and reality”. Boston: Harvard Business School Press.

lxvii.                  Mangena, M. & Chamisa, E. (2008). Corporate governance and incidences of listings suspension by the JSE Securities Exchange of South Africa: An empirical analysis. The International Journal of Accounting, 43, 28-44.

lxviii.                   Mangena, M., & Tauringana, V. (2007). Disclosure, corporate governance and foreign share ownership on the Zimbabwe stock exchange. Journal of International Financial Management and Accounting, 18(2), 53–85. http://dx.doi.org/10.1111/j.1467-646X.2007.01008.x

lxix.                       Micco, A., Panizza, U and Yañez, M. (2004). Bank Ownership and Performance. IDB Working Paper No. 429. SSRN: https://ssrn.com/abstract=1818718 or http://dx.doi.org/10.2139/ssrn.1818718

lxx. Millstein, I. M., and MacAvoy, P. W. (1998). The active board of directors and performance of the large publicly traded corporation. Columbia Law Review, June (1283)

lxxi.                     Mitnick, B.M. (2006). Origin of the Theory of Agency: An Account by One of the Theory's Originators. Retrieved from SSRN: http://ssm.com/abstract=l 020378

lxxii.                  Monks, Robert A.G., and Minnow, N. (2011). Watching the Watchers. Cambridge University Press.

lxxiii.                Monks, R. and Minow, N., (2008). Corporate governance 4th ed. Cambridge, MA: Blackwell

lxxiv.                    Mulili, B. M., & Wong, P. (2011). Corporate governance practices in developing countries: The case for Kenya. International Journal of Business Administration, 2(1), 14-26. doi:10.5430/ijba.v2n1p14.

lxxv.                      Nmehielle, V. O & Nwauche, E.S. (2004). External-Internal Standards in Corporate Governance in Nigeria. Public Law and Legal Theory Working Paper NO. 115, The George Washington University Law School.

lxxvi.                    Nwankwo, G.O. (1994). Banking Fraud. Lecture delivered at the 5th Anniversary of Money Market Association of Nigeria.

lxxvii.                  OECD (2004). Principles of Corporate Governance. Reterived from: http://www.oecd.org /dataoecd/32/18/31557724.

lxxviii.                Owolabi, S.A. (2010), Fraud and fraudulent practices in Nigeria banking industry. African Research Review, 4(3), 240-256.

lxxix.                    Padilla, Alexandre. 2002. "Can Agency Theory Justify the Regulation of Insider Trading?" The Quarterly Journal of Austrian Economics 5 (1): 3-38.

lxxx.                   Parker, S., Peters, G. F. and Turetsky, H. F. (2002). Corporate governance and corporate failure: a survival analysis. Corporate Governance, 2(2), 4-12.

lxxxi.                    Preston, L. E. (1995). The stakeholder theory of the corporation: Concepts, evidence and implications. Academy of Management Review.  VoL 20, No. 1, 65-91

lxxxii.                  Rhim, J.C., Peluchette, J.V., Song, I. (2006). Stock market reactions and firm performance surrounding CEO succession: Antecedents of succession and successor origin. American Journal of Business, 21(1), 21-30.

lxxxiii.                ROSC (2004) World Bank’s 2004 Report on the Observance of Standard and Codes

lxxxiv.                Sanusi. L.S. (2010). The Nigerian banking industry-what went wrong and the way forward. Text of the Convocation Lecture to mark the Annual Convocation Ceremony of Bayero University, Kano .on February 26

lxxxv.                  Sbracia, M. and Zaghini, A. (2003), “The role of the banking system in the international transmission of shocks”, The World Economy, vol. 26, pp. 727 – 754. 

lxxxvi.                SEC (2009). Code of Corporate Governance, Abuja: Nigeria Securities and Exchange Commission.

lxxxvii.              SEC. (2003). Code of Corporate Governance, Abuja: Nigeria Securities and Exchange Commission.

lxxxviii.            Segrestin, B., & Hatchuel, A. (2011). Beyond agency theory: A post-crisis view of

lxxxix.                corporate law. British Journal of Management, 22, 484-499. doi:10.1111/j.1467-

xc.   8551.2011.00763.x

xci. Shepherd, D.A., Zacharakis, A. (2000). Structuring family business succession: An analysis of the future leader's decision making. Entrepreneurship Theory and Practice, 24(4), 25-39.

xcii.                       Singh, M. & Davidson III, W.N. (2003). Agency Costs, Ownership Structure and Corporate Governance Mechanisms. Journal of Banking and Finance, 27, 793-816.

xciii.                     Stephen A. Ojeka1, S. A., Adetula, D. T., Mukoro, D. O. & Kpokpo, O. P. (2017). Does Chief Executive Officer Succession Affect Firms Financial Performance in Nigeria? International Journal of Economics and Financial Issues. Vol 7(2), 530-535.

xciv.                      http: www.econjournals.com

xcv.                        Sundaram, A. K. and Inkpen, A. C. (2004) “The Corporate Objective Revisited”, Organization Science, Vol. 15 No. 3, pp. 350-363.

xcvi.                      Vafeas, N. (1999). “The nature of board nominating committees and their role in corporate gvernance”. Journal of Business Finance and Accounting. Vol. 26, No 1, pp. 199-225

xcvii.                    Weir, C., Laing, D. and McKnight, P. J. (2002). Internal and External Governance Mechanisms: Their Impact on the Performance of Large UK Public Companies. Journal of Business Finance & Accounting, 29(5-6), 579-611.

xcviii.                  Yunhong, H , Ailton, G. M. & Subhani. H. I. U. H. (2017). Corporate Governance in Cape Verdean Banks: A Theoretical Review. Management, 7(6): 194-201.

xcix.                      DOI: 10.5923/j.mm.20170706.02  

c.       Zald, M.N. (1969), “The Power and Function of Boards of Directors: A Theoretical Synthesis”. American Journal of Sociology, Vol. 75, pp. 97-111.

Cite this Article: