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Director Appointments – It is Who You Know

56 Pages Posted: 18 Mar 2017 Last revised: 14 Jul 2017

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: March 15, 2017

Abstract

Corporate directors almost always run unopposed and are elected; yet shareholders have little if any say in their nomination or removal. Particularly controversial is the appointment of directors connected to the incumbent board. Connected directors could perpetuate cronyism, but could also reduce uncertainty and coordination costs of boardroom assimilation. Using 9,923 director appointments during 2003-2014, we document the dramatic impact of connections. Consistent with facilitating coordination, more complex firms and firms in more competitive environments are more likely to appoint connected directors. Such appointments receive better market reactions and higher shareholder votes. We also document limited evidence on agency motivations.

Keywords: Director Appointments, Social Network, Coordination, Agency, Shareholder Vote

JEL Classification: G34

Suggested Citation

Cai, Jie and Nguyen, Tu and Walkling, Ralph A., Director Appointments – It is Who You Know (March 15, 2017). 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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