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Boardroom Centrality and Firm Performance

56 Pages Posted: 31 Jul 2010 Last revised: 11 Mar 2016

David F. Larcker

Stanford University - Graduate School of Business

Eric C. So

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Charles C. Y. Wang

Harvard Business School

Date Written: January 13, 2013

Abstract

Firms with central boards of directors earn superior risk-adjusted stock returns. A long (short) position in the most (least) central firms earns average annual returns of 4.68%. Firms with central boards also experience higher future return-on-assets growth and more positive analyst forecast errors. Return prediction, return-on-assets growth, and analyst errors are concentrated among high growth opportunity firms or firms confronting adverse circumstances, consistent with boardroom connections mattering most for firms standing to benefit most from information and resources exchanged through boardroom networks. Overall, our results suggest that director networks provide economic benefits that are not immediately reflected in stock prices.

Keywords: board of director networks, analyst forecasts, market efficiency

JEL Classification: G3, G14, L14

Suggested Citation

Larcker, David F. and So, Eric C. and Wang, Charles C. Y., Boardroom Centrality and Firm Performance (January 13, 2013). Journal of Accounting & Economics (JAE), 55(2-3): 225-250 (April-May 2013); Rock Center for Corporate Governance at Stanford University Working Paper No. 84. Available at SSRN: https://ssrn.com/abstract=1651407 or http://dx.doi.org/10.2139/ssrn.1651407

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Eric C. So

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Charles C. Y. Wang

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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