External Networking and Internal Firm Governance
University of Texas at Austin
Geoffrey A. Tate
University of North Carolina Kenan-Flagler Business School
June 6, 2011
Journal of Finance, Forthcoming
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, L14Accepted Paper Series
Date posted: August 14, 2008 ; Last revised: June 5, 2013
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