Director Networks, Stakeholder Orientation, and the Objective of the Firm

Abstract

We exploit the network of director interlocks to examine the influence of the board’s stakeholder orientation on the firm’s disposition towards its stakeholders, director selection, and valuation. Using measures of stakeholder orientation of the board and the firm, we find that the board’s stakeholder orientation subsequently affects the firm’s stakeholder orientation. Further, prospective directors are more likely to be chosen if they can increase the alignment of stakeholder orientation between the board and the firm. Finally, the divergence in stakeholder orientation between the board and the firm reduces firm value, especially when the board’s advisory role is more critical.

Keywords: Stakeholder Orientation, Director Networks, Board Advice, Director Appointments, Firm Value

JEL Classification: G31, G34, L25