Director Networks, Firm Performance, and Shareholder Base
Karlsruhe Institute of Technology
Marc Steffen Rapp
University of Marburg - School of Business & Economics
University of Göttingen
October 10, 2010
Although often criticized for their inefficiency, director networks are observed in many economies of the world. This raises two questions: What is the empirical effect of director networks on firm performance and what are the determinants of director networks? We empirically examine both issues drawing on a unique dataset covering German firms from 1999 to 2007. We find that network embeddedness negatively affects firm performance. Moreover, while foreign investors actively disentangle the network, German institutional investors foster it. Our findings are consistent with the social class hypothesis arguing that well-connected directors feel more committed to their network than to the firms in which they sit on the board. Our findings have important implications for corporate governance research and the regulation of capital markets.
Number of Pages in PDF File: 37
Keywords: director networks, investor base, corporate governance, inter-organizational relationships
JEL Classification: G34, G15, F40, M16
Date posted: October 12, 2010
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