Does it Pay to Have Friends? - Social Ties and Executive Appointments in Banking
Allen N. Berger
University of South Carolina - Moore School of Business; Wharton Financial Institutions Center; Tilburg University - CentER
Thomas K. Kick
Frankfurt School of Finance and Management
University of Wales - Bangor Business School
August 23, 2012
Journal of Banking and Finance, Vol. 37, pp. 2087-2105
We exploit a unique sample to analyze how homophily (affinity for similar others) and social ties affect career outcomes in banking. We test if these factors increase the probability that the appointee to an executive board is an outsider without previous employment at the bank compared to being an insider. Homophily based on age and gender increase the chances of the outsider appointments. Similar educational backgrounds, in contrast, reduce the chance that the appointee is an outsider. Greater social ties also increase the probability of an outside appointment. Results from a duration model show that larger age differences shorten tenure significantly, whereas gender similarities barely affect tenure. Differences in educational backgrounds affect tenure differently across the banking sectors. Maintaining more contacts to the executive board reduces tenure. We also find weak evidence that social ties are associated with reduced profitability, providing some evidence of cronyism in banking.
Number of Pages in PDF File: 54
Keywords: social networks, executive careers, banking, corporate governance
JEL Classification: G21, G32, G34, J16Accepted Paper Series
Date posted: August 23, 2012 ; Last revised: March 12, 2014
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