Abstract

http://ssrn.com/abstract=2167354
 
 

References (58)



 
 

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Do Well-Connected Directors Improve Firm Performance?


Thomas C. Omer


University of Nebraska at Lincoln - School of Accountancy

Marjorie K. Shelley


University of Nebraska at Lincoln - School of Accountancy

Frances M. Tice


Texas A&M University

December 1, 2012


Abstract:     
This study examines whether firms with well-connected boards of directors are associated with higher firm performance. Overly busy directors are sometimes ineffective monitors. However, these same “busy” directors may be valuable sources of information. Cross-firm connections formed by shared directors are channels for the transfer of information, such as market trends, business innovations, and effective corporate practices. Shared connections form a large network composed of directors and boards. Tradeoffs for increased access to information include overcommitted directors, information overload, and possibly the propagation of damaging information, such as poor business practices. We find that firms with directors who, on average, are more centrally located within the network, or are directly connected with other highly connected individuals, experience lower firm performance, which is consistent with the busyness hypothesis. However, firms with more investment opportunities benefit from increased speed and quantity of information transfer from the director network. We also provide evidence that highly connected directors experience information overload, leading to decreased performance. This study combines methods from network theory and corporate governance to further examine the benefits and costs of shared directorates.

Number of Pages in PDF File: 47

Keywords: social networks, board of directors, information overload, corporate governance, firm performance

JEL Classification: M4, M40, M41, M49, G3, G30, G34

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Date posted: October 26, 2012 ; Last revised: December 3, 2012

Suggested Citation

Omer, Thomas C. and Shelley, Marjorie K. and Tice, Frances M., Do Well-Connected Directors Improve Firm Performance? (December 1, 2012). Available at SSRN: http://ssrn.com/abstract=2167354 or http://dx.doi.org/10.2139/ssrn.2167354

Contact Information

Thomas C. Omer
University of Nebraska at Lincoln - School of Accountancy ( email )
307 College of Business Administration
Lincoln, NE 68588-0488
United States
Marjorie Shelley
University of Nebraska at Lincoln - School of Accountancy ( email )
307 College of Business Administration
Lincoln, NE 68588-0488
United States
Frances M. Tice (Contact Author)
Texas A&M University ( email )
430 Wehner
College Station, TX 77843-4353
United States
979-458-4501 (Phone)
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