Director Appointments – It is Who You Know

64 Pages Posted: 18 Mar 2017 Last revised: 9 Nov 2020

See all articles by Jie Cai

Jie Cai

Drexel University

Tu Nguyen

University of Waterloo - School of Accounting and Finance

Ralph A. Walkling

Drexel University - Lebow College of Business

Date Written: October 11, 2020

Abstract

Using 9,801 director appointments during 2003-2014, we document the dramatic impact of connections - 69% of new directors have professional ties to incumbent boards, a group representing 13% of all potential candidates. Consistent with facilitating coordination and reducing search costs, connections help boards bring in new skills and diversity. More complex firms and firms in more competitive environments tend to appoint connected directors, experience better market reactions and higher shareholder votes. Connections to incumbent CEOs, however, result in lower announcement returns and shareholder votes. Educational or social ties have little effect. We use death (merger)-induced network loss (gain) as instruments.

Keywords: Director Appointments, Social Networks, Board Diversity, Coordination, Search Cost, Homophily, Agency, Shareholder Vote

JEL Classification: G34

Suggested Citation

Cai, Jie and Nguyen, Tu and Walkling, Ralph August, Director Appointments – It is Who You Know (October 11, 2020). 28th Annual Conference on Financial Economics and Accounting, Available at SSRN: https://ssrn.com/abstract=2934434 or http://dx.doi.org/10.2139/ssrn.2934434

Jie Cai (Contact Author)

Drexel University ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
215-895-1755 (Phone)
215-895-2955 (Fax)

HOME PAGE: http://faculty.lebow.drexel.edu/CaiJ/

Tu Nguyen

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada

Ralph August Walkling

Drexel University - Lebow College of Business ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
(215) 895-4920 (Phone)
(215) 895-6119 (Fax)

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