The Impact of Networks on CEO Turnover, Appointment, and Compensation

72 Pages Posted: 22 Mar 2010

See all articles by Yun Liu

Yun Liu

Claremont Colleges - Keck Graduate Institute

Date Written: March 16, 2010

Abstract

I study the influence of networks and connectedness on CEO labor market outcomes, including new CEO appointments, CEO termination, and CEO compensation. I distinguish between the pairwise specific CEO-board connectedness and the strength and structure of the CEO’s overall connectedness. I find that both types of connectedness add to traditional turnover and compensation variables in distinct and economically significant ways. Specific connectedness increases CEO entrenchment. Greater overall CEO connectedness on the employment network results in greater likelihood of CEO departure, greater turnover-performance sensitivity, and more rapid re-employment of a departed CEO. The existence of specific links between the CEO candidate and the board of directors enhances the chances of appointment in the event a company chooses to appoint an outsider as the CEO. Finally, CEOs with better overall connectedness enjoy higher total compensation. The evidence suggests that the general connectedness of a CEO in the employment network has significant and distinct economic effects beyond those of the connections between the CEO and the board in the current firm.

Keywords: Social networks, CEO turnover, CEO compensation

JEL Classification: G34

Suggested Citation

Liu, Yun, The Impact of Networks on CEO Turnover, Appointment, and Compensation (March 16, 2010). Available at SSRN: https://ssrn.com/abstract=1573244 or http://dx.doi.org/10.2139/ssrn.1573244

Yun Liu (Contact Author)

Claremont Colleges - Keck Graduate Institute ( email )

535 Watson Drive
Claremont, CA 91711
United States

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