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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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    Cited by:

    1. Fuchs, Florian & Fuess, Roland & Jenkinson, Tim & Morkoetter, Stefan, 2017. "Winning a Deal in Private Equity: Do Educational Networks Matter?," Working Papers on Finance 17155, University of St. Gallen, School of Finance.
    2. Fernández Méndez, Carlos & Pathan, Shams & Arrondo García, Rubén, 2015. "Monitoring capabilities of busy and overlap directors: Evidence from Australia," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 444-469.
    3. Calluzzo, Paul & Dong, Gang Nathan, 2014. "Fund governance contagion: New evidence on the mutual fund governance paradox," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 83-101.
    4. Xie, Jun, 2015. "CEO career concerns and investment efficiency: Evidence from China," Emerging Markets Review, Elsevier, vol. 24(C), pages 149-159.
    5. repec:eee:finana:v:63:y:2019:i:c:p:395-405 is not listed on IDEAS
    6. Nikos Bozionelos & Sumona Mukhuty, 2015. "Why CEOs Resign: Poor Performance or Better Opportunities?," Post-Print hal-01145842, HAL.
    7. Goergen, Marc & Renneboog, Luc & Zhao, Yang, 2019. "Insider trading and networked directors," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 152-175.
    8. Berardi, Nicoletta & Lalanne, Marie & Seabright, Paul, 2018. "Professional networks and their coevolution with executive careers: Evidence from North America and Europe," SAFE Working Paper Series 243, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    9. Crespí-Cladera, Rafel & Pascual-Fuster, Bartolomé, 2014. "Does the independence of independent directors matter?," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 116-134.
    10. Renneboog, Luc & Zhao, Yang, 2014. "Director networks and takeovers," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 218-234.
    11. Fiordelisi, Franco & Ricci, Ornella, 2014. "Corporate culture and CEO turnover," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 66-82.
    12. Renneboog, Luc & Zhao, Yang, 2017. "Director Networks, Turnover, and Appointments," Discussion Paper 2018-035, Tilburg University, Center for Economic Research.
    13. Mitri Kitti & Matti Pihlava & Hannu Salonen, 2016. "Search in Networks: The Case of Board Interlocks," Discussion Papers 116, Aboa Centre for Economics.
    14. Nicoletta Berardi & Marie Lalanne & Paul Seabright, 2019. "Professional Networks and their Coevolution with Executive Careers," Working papers 723, Banque de France.
    15. Lalanne, Marie & Seabright, Paul, 2016. "The old boy network: The impact of professional networks on remuneration in top executive jobs," SAFE Working Paper Series 123, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    16. Sofi Mohd Fikri & Mohamed Hisham Yahya & Taufiq Hassan, 2017. "A Review on Agency Cost of Shariah Governance in Mutual Fund," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 530-538.

    More about this item

    Keywords

    CEO turnover; CEO networks; Outside options;

    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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