The relationship between chief executive officer turnover and firm performance, for companies quoted at the Nairobi securities exchange

Abstract

The Chief Executive Officer of an organisation is its most senior general manager (Andrews, 1987). The likelihood of CEO turnover following poor performance is found to be influenced by board structure and ownership structure of the firm. In the case of board structure, it has been widely acknowledged that board with small size, high independence, and separate role of CEO and chairman was better in performing its monitoring duty. The study sought to establish the relationship between CEO turnover and firm performance, evidence from firms quoted in the NSE. The study adopted a descriptive cross-sectional research design, which was used since the problem was defined specifically and the researcher had certain issue that was described by the respondents about the problem. The population of this study was all the companies listed at NSE, there are 61 companies that are currently listed in the NSE. The sample size was 17 companies listed at NSE which had CEO change in the last few years. Secondary data was collected for this study. The relationship between CEO turnover and firm performance will be tested by logit model. The study revealed that that there exists a positive relationship between CEO turnover and firm performance, this is an indication that CEO turnover/change can be used to enhance the performance of the firm with poor performance. Poor firm performance is found to greatly influence a board of directors' decision for CEO turnover which include accounting performance, stocks performance, CEO personality, composition of the board of directors, mergers and acquisitions, organizational factors, and auditing. The study also found that the level of turnovers was higher in companies with low corporate performance. The study found that the state of performance prior to the turnovers explained only a small percentage of the variants. They indicated that the relation between variables following a turnover was still weak