Are Directors Really Irrelevant to Capital Structure Choice?
45 Pages Posted: 29 Nov 2016 Last revised: 6 Jan 2017
Date Written: January 5, 2017
DeAngelo and Roll (2015) observe that leverage cross-sections change significantly over even short periods. This finding is largely incompatible with existing models operating on the assumption that firms choose leverage levels in isolation. In this paper, we ask how executive networks might affect the decision making process. Using a sample of large US firms, we apply the stochastic actor dynamic social network methodology to show that firms with directors in common tend to become more similar in capital structure. Network influence effects are economically significant even with traditionally employed capital structure variables and are robust to director selection effects.
Keywords: Board interlocking network, capital structure
JEL Classification: G31, G32
Suggested Citation: Suggested Citation