Should I Stay or Should I Go? Rank-Order Tournaments and Top Executive Voluntary Departures

What makes top executives leave their positions voluntarily and search for outside career opportunities? We apply survival analysis to model the tenure and mode of exit of CEOs and CFOs from German stock-market quoted companies between 1999 and 2008. Drawing on tournament theory, we argue that top executives also take part in external tournaments for better positions at larger or more prestigious firms. We find evidence that top executives in small firms have a higher motivation to compete in external tournaments, which increases their likelihood of voluntary departure. Moreover, we show that CFOs are more likely to leave their positions voluntarily than CEOs, especially those CFOs not promoted internally following a CEO turnover. Firm performance is less of a driver for top executive voluntary departure than it is for dismissal. Our results reveal that tournament theory might be a fruitful perspective in managerial succession research to explain top executive voluntary departures.