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Does it Pay to Have Friends? - Social Ties and Executive Appointments in Banking

54 Pages Posted: 23 Aug 2012 Last revised: 12 Mar 2014

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Thomas K. Kick

Deutsche Bundesbank

Michael Koetter

IWH

Klaus Schaeck

University of Bristol

Multiple version iconThere are 2 versions of this paper

Date Written: August 23, 2012

Abstract

We exploit a unique sample to analyze how homophily (affinity for similar others) and social ties affect career outcomes in banking. We test if these factors increase the probability that the appointee to an executive board is an outsider without previous employment at the bank compared to being an insider. Homophily based on age and gender increase the chances of the outsider appointments. Similar educational backgrounds, in contrast, reduce the chance that the appointee is an outsider. Greater social ties also increase the probability of an outside appointment. Results from a duration model show that larger age differences shorten tenure significantly, whereas gender similarities barely affect tenure. Differences in educational backgrounds affect tenure differently across the banking sectors. Maintaining more contacts to the executive board reduces tenure. We also find weak evidence that social ties are associated with reduced profitability, providing some evidence of cronyism in banking.

Keywords: social networks, executive careers, banking, corporate governance

JEL Classification: G21, G32, G34, J16

Suggested Citation

Berger, Allen N. and Kick, Thomas K. and Koetter, Michael and Schaeck, Klaus, Does it Pay to Have Friends? - Social Ties and Executive Appointments in Banking (August 23, 2012). Journal of Banking and Finance, Vol. 37, pp. 2087-2105. Available at SSRN: https://ssrn.com/abstract=2134801 or http://dx.doi.org/10.2139/ssrn.2134801

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Thomas K. Kick

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Michael Koetter

IWH ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/en/about-the-iwh/people/detail/michael-koetter/

Klaus Schaeck

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

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