Director Appointments – It is Who You Know
64 Pages Posted: 18 Mar 2017 Last revised: 9 Nov 2020
Date Written: October 11, 2020
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: Suggested Citation