Abstract

http://ssrn.com/abstract=2167354
 
 

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Do Well-Connected Directors Affect Firm Value?


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

May 1, 2014


Abstract:     
Results have been mixed regarding whether, and how much, board of director connectedness is beneficial to firm value. Some prior research shows that overly busy directors are ineffective monitors, but these same “busy” directors can be valuable sources of information and other resources. For example, directors who are centrally located within a network can obtain information faster and those who are connected to other highly connected directors can access larger quantities of information. The information can take many forms including market trends, business innovations, and effective corporate practices and is available through these director network channels. However, increased information transfer speed (network centrality) and quantity (connections to highly-connected others) may not always balance out the negative effects of overcommitted directors, information overload, and the propagation of poor business practices. Using social network analysis, we investigate whether well-connected directors increase firm value and find that firms with well-connected directors have higher market value, after controlling for their operating cycle, investment opportunity sets and market competition. We also find that well-connected outside directors (independent) have a bigger impact on increasing firm value than well-connected inside directors.

Number of Pages in PDF File: 37

Keywords: social networks; board of directors; corporate governance; firm value

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

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Date posted: October 26, 2012 ; Last revised: June 22, 2014

Suggested Citation

Omer, Thomas C. and Shelley, Marjorie K. and Tice, Frances M., Do Well-Connected Directors Affect Firm Value? (May 1, 2014). 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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References:  58
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