Boardroom Centrality and Firm Performance: Evidence from Private Firms

Abstract

We study the link between boardroom centrality and operating performance in private firms. We argue that the centrality-performance relationship is stronger for private firms whose increased connectedness is likely to provide certification benefits, decrease transaction costs by reducing information asymmetry, and improve access to critical resources. Using a sample of Finnish and Swedish private firms, we find that private firms with more central boards have better performance, growth, and efficiency than private firms with less central boards. Moreover, in a sample of private and public firms, we find that private firms with greater eigenvector centrality outperform size-matched public firms. Subsample analyses further show that networks are crucial for young firms. This is consistent with the view that better-connected directors provide firms with informational resources when they need them the most. Overall, our findings show that boardroom interlocks are positively associated with immediate economic benefits to private firms.

Keywords: Boardroom centrality, social networks, firm performance, firm growth, firm efficiency, private firms, public firms

JEL Classification: G3, G14, L14