Director Overlap and Firm Financial Policies
Christa H. S. Bouwman
Case Western Reserve University - Department of Banking & Finance; Wharton Financial Institutions Center
Harvard Business School
March 15, 2010
AFA 2011 Denver Meetings Paper
In this paper, we utilize director overlap across firms to investigate whether individual directors matter in shaping corporate practices and influencing firm behavior. Specifically, we examine whether a firm is more likely to adopt a particular financial policy if other firms at which its directors have board seats have adopted that policy. Using a comprehensive dataset covering all the directors on the boards of more than 1,000 firms each year from 2001 to 2007, we find that overlapping directors exert statistically significant and economically meaningful influences on a wide range of corporate decisions including equity issuance, dividend policy, mergers and acquisitions, earning management, and earnings restatements. A firm is more likely to issue equity, initiate, increase, or reduce dividends, engage in mergers and acquisition, manage earnings, and restate earnings if its directors have board seats at other firms that engage in the same activity. Our results suggest that director overlap is a potential important channel for propagating key corporate policies across firms and help shed light on how information, innovation, and corporate practices, good or bad, can be spread across firms through personal influence networks.
Number of Pages in PDF File: 2working papers series
Date posted: March 19, 2010 ; Last revised: January 3, 2011
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.297 seconds