CHIEF EXECUTIVE OFFICER TENURE AND FIRM VALUE OF QUOTED MANUFACTURING FIRMS IN NIGERIA



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CHIEF EXECUTIVE OFFICER TENURE AND FIRM VALUE OF QUOTED MANUFACTURING FIRMS IN NIGERIA



CHAPTER ONE

INTRODUCTION

Background of the study

In a typical corporate setting, a CEO is analogous to the captain of a ship with ultimate authority vested in him by the board of directors of the firm. During the period he heads the firm, it is expected that he would render his services as a fiduciary of the shareholders. By virtue of being in the role of a fiduciary, he would be expected to take wise decisions which benefits the firm in long/short term and the stakeholders of the firm become well off. As per Hambrick and Fukutomi (1991) paradigm of CEO tenure seasons, the temporal characteristics associated with CEO tenure can affect firm performance. Primarily, the paradigm is based on the premise that‘there are discernible phases, or seasons, within an executive’s tenure in a position, and those seasons give rise to distinct patterns of executive attention, behavior, and ultimately, organizational performance’. Depending on the CEO’s life cycle seasons, CEO tenure can have both positive and negative effects on firm performance (Miller and Shamsie, 2001). For most of the jobs there is a tenure during which an individual is most productive. In the corporate world, a CEO is appointed by the board of directors, who in turn is elected by the owners (shareholders) of the firm (Agrawal and Knoeber, 1996), to render his services as the head of the management team to steer the company towards its objective (which in most cases is implicitly assumed to be the shareholder wealth maximization SWM1) by increasing the market price of outstanding shares, however a company can be registered for any legal objective like customer satisfaction, profit maximization, generating employment, manufacture good quality products etc. not to mention SWM may be one of them. A CEO gets to utilize the resources (human and materials) of the company and has the decision making authority over them by the virtue of the power vested in him by the owners of the company. The CEO, in consultation with his executives is expected to make decisions in the best interest of the company, decisions that would send positive signals to the market, existing and potential investors about the future of the company. There are incidences where CEOs did admit that quitting was indeed a good idea after a certain time period because they virtually ran out of ideas and it was befitting in the interest of the firm and its stakeholders to appoint someone else as the new CEO rather than continuing with them. CEO tenure, unlike some public sector executive job does not have a pre-defined age of retirement. A CEO gets appointed and reappointed by the board based on his merits, which is the reason that there are examples of CEO tenures ranging from a few months to close to 50 years.

Statement of the problem The current global national economy realities indicates that the corporate economy environment is becoming harsher, competition is getting tougher coupled with the increasingly complex demands of the various stakeholders. Due to the above facts several manufacturing firms have gone down in their value; Some as a result of inexperienced Chief executive officer (CEOs) who acts as head of management. In recent years, there has been a debate in both the business press and among legal scholars about the usefulness of term limits for chief executive officers (CEOs) of manufacturing firms in Nigeria. At the heart of this debate is the question whether an optimal CEO tenure exists. To answer this question requires an understanding of the costs and benefits that arise over a CEO’s time in office as well as the determinants of this cost-benefit relation. This study, examines the relation between CEO tenure and firm value to address these issues. Results improve our understanding of why and to which extent CEOs tenure matters.


Objectives of the study

The major purpose of this study is to examine the usefulness of term limits for chief executive officers (CEOs). Specifically this study aims to achieve the following objectives; To examine the relationship between CEO tenure and profitability of manufacturing firms in Nigeria. To investigate the relationship between CEO tenure and Return on asset of manufacturing firms in Nigeria.


1.4 Research questions

The following research questions were developed to guide the researcher in achieving the objectives of this study; What is the relationship between CEO tenure and profitability of manufacturing firms in Nigeria? Ii What is the relationship between CEO tenure and Return on asset of manufacturing firms in Nigeria?

Citation - Reference

All Project Materials Inc. (2020). CHIEF EXECUTIVE OFFICER TENURE AND FIRM VALUE OF QUOTED MANUFACTURING FIRMS IN NIGERIA. Available at: https://researchcub.info/department/paper-7416.html. [Accessed: ].

CHIEF EXECUTIVE OFFICER TENURE AND FIRM VALUE OF QUOTED MANUFACTURING FIRMS IN NIGERIA


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In a typical corporate setting, a CEO is analogous to the captain of a ship with ultimate authority vested in him by the board of directors of the firm. During the period he heads the firm, it is expected that he would render his services as a fiduciary of the shareholders. By virtue of being in the role of a fiduciary, he would be expected to take wise decisions which benefits the firm in long/short term and the stakeholders of the firm become well off. As per Hambrick and Fukutomi (1991) paradigm of CEO tenure seasons, the temporal characteristics associated with CEO tenure can affect firm performance. Primarily, the paradigm is based on the premise that‘there are discernible phases, or seasons, within an executive’s tenure in a position, and those seasons give rise to distinct patterns of executive attention, behavior, and ultimately, organizational performance’. Depending on the CEO’s life cycle seasons, CEO tenure can have both positive and negative effects on firm performance (Miller and Shamsie, 2001). For most of the jobs there is a tenure during which an individual is most productive. In the corporate world, a CEO is appointed by the board of directors, who in turn is elected by the owners (shareholders) of the firm (Agrawal and Knoeber, 1996), to render his services as the head of the management team to steer the company towards its objective (which in most cases is implicitly assumed to be the shareholder wealth maximization SWM1) by increasing the market price of .. Click here for more

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