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http://ssrn.com/abstract=1213358
 
 

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External Networking and Internal Firm Governance


Cesare Fracassi


University of Texas at Austin

Geoffrey A. Tate


University of North Carolina Kenan-Flagler Business School

June 6, 2011

Journal of Finance, Forthcoming

Abstract:     
We use panel data on S&P 1500 companies to identify external network connections between directors and CEOs. We find that firms with more powerful CEOs are more likely to appoint directors with ties to the CEO. Using changes in board composition due to director death and retirement for identification, we find that CEO-director ties reduce firm value, particularly in the absence of other governance mechanisms to substitute for board oversight. Moreover, firms with more CEO-director ties engage in more value-destroying acquisitions. Overall, our results suggest that network ties with the CEO weaken the intensity of board monitoring.

Number of Pages in PDF File: 50

Keywords: Corporate Governance, Social Networks, Board Selection, Mergers and Acquisitions, Firm Value

JEL Classification: G34, L14

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Date posted: August 14, 2008 ; Last revised: June 5, 2013

Suggested Citation

Fracassi, Cesare and Tate, Geoffrey A., External Networking and Internal Firm Governance (June 6, 2011). Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1213358

Contact Information

Cesare Fracassi
University of Texas at Austin ( email )
Red McCombs School of Business
1 University Station B660
Austin, TX 78712
United States
Geoffrey A. Tate (Contact Author)
University of North Carolina Kenan-Flagler Business School ( email )
McColl Building
Chapel Hill, NC 27599-3490
United States

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