MONEY VERSUS LEGACY: PRE-SUCCESSION BEHAVIOR OF VOLUNTARILY DEPARTING CEOs

Abstract

Do CEOs who leave voluntarily influence firm performance before their departure to boost their own wealth or do they care more about their legacy? We address this research question by examining whether voluntarily departing CEOs—defined as CEOs who terminate their tenure without facing significant pressure to do so—make decisions in the pre-succession phase to boost firm performance. In this study, we focus on voluntary departure because the pre-succession phase of this departure type is uniquely characterized by pronounced information asymmetry and considerations of future career prospects of the CEO. Building on the premises of agency theory and on cognition-based explanations of executive decision-making we distinguish between two types of self-interested behavior: CEO personal wealth interests and CEO legacy interests. Our analyses of hand-collected data for voluntary CEO departures in S&P 500 firms between 2000 and 2016 reveal that voluntarily departing CEOs do not actively engage in self-interested decisions in the pre-succession phase. However, throughout their tenures, these CEOs do make accounting-based decisions that are likely to serve their interests in the post-departure phase. With this study, we aim to spur research devoted to voluntary CEO departures and their implications for organizations. These findings have important theoretical and practical implications for corporate governance research and agency theory and what the most appropriate mechanisms of monitoring and control might be on the behavior of voluntarily departing CEOs.