How Long Should Bank CEOs Continue?: Evidence from Nigeria

Abstract

In 2010, the CBN announced a fixed tenure policy for bank CEOs in Nigeria. To contribute to the understanding of the (in)appropriateness of this policy, this study analyzes the link between CEO tenure and bank efficiency in Nigeria. Using a balanced data set comprising 160 observations of 32 pre-consolidation banks and 80 observations of 16 post-consolidation banks over the financial period 2000-2009 and an unbalanced data set comprising 144 observations of 55 pre-consolidation banks and 87 observations of 25 post-consolidation banks over the same period, bank efficiency estimates are obtained using DEA. Findings of the study are robust in suggesting that new CEOs usually do everything possible to cut costs in order to shore up profits and demonstrate to their respective boards that their banks are now performing much better than before their tenure began; and they primarily concern themselves with generating and implementing fresh ideas that match inputs to outputs in the production process in adequate and cost effective proportions, rather than solely focusing on expanding the volume of outputs. We also show that a 16 year limit to the tenure of bank CEOs in Nigeria seems more appropriate to the current 10 year limit, if the fixed tenure policy is to be in the best interests of the Nigerian banking industry and indeed the entire Nigerian economy.

Keywords: Bank, Corporate Governance, CEO Tenure, Efficiency, Nigeria

JEL Classification: G21, G28, G38