The financial performance of listed companies : does CEO tenure have an impact?

Abstract

It is widely held that CEOs are central to the successful financial performance of companies. Yet, little attention has been given to the correlation between CEO tenure and financial performance of companies specifically. The purpose of this study was to determine whether CEO tenure has an impact on financial performance of companies in South Africa. The financial performance variables for the study were ROA and ROE. The performance of 30 JSE listed companies from three industries, namely, mining, retail and real estate, between 1995 to 2007 was examined. This gave a total of 62 data observations across the selected three tenure categories: short tenure (one to three years); medium tenure (four to five years); and long tenure (six or more years). The results showed that the average tenure for South African CEOs was four years; this was slightly lower than the findings of previous studies conducted in the USA. Medium and long tenure showed better financial performance for ROA than short tenure, while there was no statistically significant finding for ROE. Therefore from an ROA point of view, as tenure increases so does financial performance, until a certain point at which it is anticipated that lengthy tenure will lead to a decline in financial performance.