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Resources or Power? Implications of Social Networks on Compensation and Firm Performance

Journal of Business, Finance and Accounting, Vol. 39, Issue 3-4: 399-426.

46 Pages Posted: 12 Jun 2009 Last revised: 19 Jul 2013

Joanne Horton

University of Exeter Business School

Yuval Millo

London School of Economics & Political Science (LSE) - Accounting Department

George Serafeim

Harvard University - Harvard Business School

Multiple version iconThere are 2 versions of this paper

Date Written: 2012

Abstract

Using a sample of 4,278 listed UK firms, we construct a social network of directorship-interlocks that comprises 31,495 directors. We use social capital theory and techniques developed in social network analysis to measure a director’s connectedness and investigate whether this connectedness is associated with their compensation level and their firms overall performance. We find connectedness is positively associated with compensation and with the firm’s future performance. The results do not support the view that executive and outside directors use their connections to rent extract. Rather the company compensates these individuals for the resources these better connections provide to the firm.

Keywords: corporate governance, compensation, board of directors, social networks, performance

JEL Classification: G30, G32, J33, L22, M41

Suggested Citation

Horton, Joanne and Millo, Yuval and Serafeim, George, Resources or Power? Implications of Social Networks on Compensation and Firm Performance (2012). Journal of Business, Finance and Accounting, Vol. 39, Issue 3-4: 399-426.. Available at SSRN: https://ssrn.com/abstract=1416935

Joanne Horton

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

Yuval Millo

London School of Economics & Political Science (LSE) - Accounting Department ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://www.lse.ac.uk/collections/accounting/facultyAndStaff/profiles/Millo.htm

George Serafeim (Contact Author)

Harvard University - Harvard Business School ( email )

381 Morgan Hall
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=15705

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