Outside options and CEO turnover: The network effect

- CEO network position is used to assess outside employment options.
- CEO connectedness increases the likelihood of turnover.
- The network effect concentrates on turnover likely motivated by outside options.
- The network effect is stronger for poorer performers.
- Endogeneity concerns are addressed with fixed effects and IV approaches.

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.