The Network Centrality of Influential Bankers: A New Capital Structure Determinant

Posted: 24 Aug 2009 Last revised: 25 Nov 2009

See all articles by Joao Amaro de Matos

Joao Amaro de Matos

Nova School of Business and Economics

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Pedro Matos

University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)

Joao Mergulhao

Sao Paulo School of Economics-FGV

Date Written: August 14, 2009

Abstract

This paper studies the impact of the presence of bankers in the board of a corporation on its capital structure. We assume that the presence of bankers lowers information asymmetry problems, facilitating information transmission between corporations and financial institutions. Using a large database on Board of Directors, we construct the directors's social network and measure the relative influence (centrality) of bankers on the information transmission mechanism. Our results indicate that for a sample of US firms, the presence of bankers in the board increases the leverage ratio. This effect is magnified by the influence of the banker, i.e. the more connected a banker is, the higher the leverage ratio of the firm in which he or she sits. We also show that he effect of banker's social influence on the leverage ratio increases with firm's opacity, which is consistent with our interpretation of the role of bankers on the information transmission mechanism.

Keywords: Capital Structure, Board of Directors, Social Networks

JEL Classification: G32

Suggested Citation

Amaro de Matos, Joao and Ferreira, Miguel Almeida and Matos, Pedro and Mergulhão, João, The Network Centrality of Influential Bankers: A New Capital Structure Determinant (August 14, 2009). 22nd Australasian Finance and Banking Conference 2009, Available at SSRN: https://ssrn.com/abstract=1460791 or http://dx.doi.org/10.2139/ssrn.1460791

Joao Amaro de Matos

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-038
Portugal

HOME PAGE: http://docentes.fe.unl.pt/~amatos

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Pedro Matos

University of Virginia - Darden School of Business ( email )

University of Virginia
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434 243 8998 (Phone)
434 924 0726 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty-research/directory/pedro-matos/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

João Mergulhão (Contact Author)

Sao Paulo School of Economics-FGV ( email )

Rua Itapeva 474
s.1202
São Paulo, São Paulo 01332-000
Brazil

HOME PAGE: http://eesp.fgv.br/professores/joao_mergulhao

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