Directors as Connectors: The Impact of the External Networks of Directors on Firms

71 Pages Posted: 25 Mar 2016 Last revised: 13 Feb 2017

See all articles by Quoc-Anh Do

Quoc-Anh Do

Sciences Po - Department of Economics; Centre for Economic Policy Research (CEPR)

Yen Teik Lee

Asia School of Business

Bang Dang Nguyen

University of Cambridge Judge Business School

Date Written: February 2017

Abstract

The external networks of directors significantly impact firm value and decisions. Surrounding close gubernatorial elections, local firms with directors connected to winners increase value by 4.1% over firms connected to losers. Director network’s value increases with network strength and activities, and is not due to network homophily. Connected firms are more likely to receive state subsidies, loans, and tax credits. They obtain better access to bank loans, borrow more, pay lower interest, invest and employ more, and enjoy better long-term performance. Network benefits are concentrated on connected firms, possibly through quid pro quo deals, and unlikely spread to industry competitors.

Keywords: External Networks of Directors, Board of Directors, Connectors, Regression Discontinuity Design, Close Gubernatorial Election

JEL Classification: G32, G34

Suggested Citation

Do, Quoc-Anh and Lee, Yen Teik and Nguyen, Bang Dang, Directors as Connectors: The Impact of the External Networks of Directors on Firms (February 2017). Asian Finance Association (AsianFA) 2017 Conference. Available at SSRN: https://ssrn.com/abstract=2753836 or http://dx.doi.org/10.2139/ssrn.2753836

Quoc-Anh Do

Sciences Po - Department of Economics ( email )

28 rue des Saints-Pères
Paris, 75007
France

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Yen Teik Lee

Asia School of Business ( email )

Jalan Kuching, Kuala Lumpur, Wilayah Persekutuan K
Kuala Lumpur, MA
Malaysia

Bang Dang Nguyen (Contact Author)

University of Cambridge Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 122 376 0470 (Phone)
+44 1223 339701 (Fax)

HOME PAGE: http://www.jbs.cam.ac.uk/research/faculty/nguyenbd.html

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