This paper analyzes the effect of the terms in office of executive officers on the performance of commercial banks and discusses policy implications. In the empirical analysis, we use many variables for the term in office: mean, median and standard de...
This paper analyzes the effect of the terms in office of executive officers on the performance of commercial banks and discusses policy implications. In the empirical analysis, we use many variables for the term in office: mean, median and standard deviation of the term in office. The results of the empirical analysis show that the longer the median term in office of executive officers is, the higher the productivity of the bank is. The terms in office of the CEOs and outside directors, however, do not have significant effect on the performance of the bank. In the case of domestic banks, the median term in office has generally increased since 2000, but it is still less than two years. This could be a driving force for the wide spread short-termism in the Korean banking industry. Short-termism may not only worsen bank performances by narrowing the decision-making scope of executives, but may also increase the risk of the entire financial system, by exacerbating non-performing loan problems. Policy measures to lengthening the terms in office of bank executives need to be considered.