The Effect of CEO Replacement on Organization Performance in Public Institutions in Korea: Moderating effect of type of CEO replacement and political connection
Authors:   Asia-Europe Perspective Association, Choi Bu Kyung , Ahn Ji-Young 
Published: December 2024

We cannot overemphasize the importance of the percentage of public institutions’ lives and the role they play. While recognizing the necessity and importance of such public institutions, the importance of management of public institutions is being emphasized by the repetition of circumstances in which ineffectiveness arises due to unique ownership structures and behavioral characteristics. In addition, demands for corporate transparency and efficient management of public institutions continue to be raised, and the CEO of the agency is at the center of these public institutions’ innovation and performance-enhancing operations and decisions. Effective management of such public institutions requires ensuring CEO’s accountability for managerial performance, and the basis for securing accountability starts with agency’s CEO who is responsible for the agency’s performance.
Therefore, the purpose of this study is to analyse how the replacement of the CEO of a public institution affects the performance of the institution and to verify the types of replacements (external and internal) of the CEO and the discriminatory effects of the relationship of the CEO’s political connections. Not only is there not enough research to consider the heads of public institutions, but most studies rely on the agency theory. Therefore, the present study aims to provide a balanced view of the effectiveness of director replacement by providing, exploring and verifying the possibility that a public institution’s resources will have a positive impact on the organization’s performance or accountability, away from a single view from the existing study. To do that, the government designated public corporations and quasi-government agencies as public institutions from 2007 to 2014 for the purpose of the change in the director’s performance and the type of change in the director’s relationship with performance(external and internal).
The analysis of public corporations and quasi-governmental organizations shows these results. At first, it was found that the replacement of the CEO of the public institutions was related to a negative relationship between the management evaluation score, which is an indicator of the management performance. This indicates that frequent changes in the CEO of public institutions are affecting the performance of their management evaluations. Second, the conclusion of an analysis on the adjustment effect of the relationship between replacement type(external appointment/internal appointment) of the CEO and the performance shows that the external appointment of agency’s CEO indicated a significant relationship with the management evaluation score. In other words, the negative impact between the replacement of the CEO and the performance is mitigated when the CEO is appointed from outside. In addition, the analysis of the CEO’s political connections showed a significant positive effect, as was the result of external appointment. This showed that the negative impact of the CEO’s replacement on performance was weakened when the politically connected CEO is appointed.
Therefore, the results of this study indicate that external appointment and political connections of the head of the agency, which have so far been emphasized from the perspective of agency theory, can be used as a major resource for public institutions. Because of the strong dependence of public institutions on government or related departments, access to financial resources, expertise and information was obtained by raising the accessibility of public institutions themselves and bringing in people with good quality information and networking.