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Outside options and CEO turnover: The network effect

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  • Liu, Yun

Abstract

Most studies consider chief executive officer (CEO) turnover from the firm's perspective. In this paper, I suggest that the labor market conditions for CEOs affect turnover outcomes. I use CEOs' positions on corporate executive and director networks to assess their employment options. Controlling for performance, firm characteristics, and personal traits, I find that CEO connectedness significantly increases turnover probability, especially for poor performers. I also show that connectedness increases the likelihood of CEOs leaving for other full-time positions, or their retiring and taking part-time positions elsewhere, but does not have a significant effect on the likelihood that they will step down and remain with the firm in other capacities. The evidence supports the idea that a CEO's connectedness expands outside options and thus increases turnover probability.

Suggested Citation

  • Liu, Yun, 2014. "Outside options and CEO turnover: The network effect," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 201-217.
    • Handle: RePEc:eee:corfin:v:28:y:2014:i:c:p:201-217
    DOI: 10.1016/j.jcorpfin.2014.03.004
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    More about this item

    Keywords

    CEO turnover; CEO networks; Outside options;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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