Don’t stop me now! Effects of CEO turnover on the performance of public institutions

ABSTRACT

This study explored the impact of CEO turnover during the term of office on public institutions’ performance. We examined the unique situation of South Korea – using an exogenously generated remaining term of office due to former President Park Geun-hye’s impeachment in 2017 as an instrumental variable (IV) for the event of CEO turnover – to identify causal relations. The results showed that public institutions’ performance declined when the CEO was replaced after failing to serve the three-year term. Our findings suggest that safeguarding CEOs’ stable positions from political influences is crucial to enhancing public institutions’ performance.

KEYWORDS:

• Public institution
• CEO turnover
• performance
• instrumental variable
• south Korea

JEL CLASSIFICATION:

• H10
• M50

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ In this study, a public institution refers to an enterprise established with government funding for the purpose of supplying public goods and services, as well as government departments. Section 2 provides detailed explanation about public institutions.

² For example, refer to the following article: ‘Public Enterprise CEOs Appointed on Cronyism,’ The Korea Times, 27 July 2008.

³ Park Geun-hye, the 18th president of South Korea, was elected to serve a term from March 2013 to February 2018 but was impeached in March 2017.

⁴ The status of public institutions changes every year based on the Ministry of Economy and Finance’s decisions. Typical public corporations include Korea Electric Power Corporation; Korea Gas Corporation; Korea Minting, Security Printing & ID Card Operating Corporation; and Korea Water Resources Corporation. Examples of quasi-governmental institutions include the National Pension Service, Korea Student Aid Foundation, National Health Insurance Service, Korea International Cooperation Agency, and Korea Technology Finance Corporation. Finally, Seoul National University Hospital, Ulsan National Institute of Science and Technology, and the Korea Development Institute are examples of non-classified public institutions.

⁵ For example, refer to the following article: ‘South Korea Removes President Park Geun-hye,’ The New York Times, 9 March 2017.

⁶ The CEOs would have been affected less if the newly elected president had been from the same party. However, the president’s party changed from the Liberty Korea Party to the Democratic Party, which made the transition more impactful.

⁷ The heads of public institutions tend to be men in their mid- to late-50s, high-ranking officials, politicians, or professors. There were few differences in the observed characteristics of CEOs across institutions.