Director Networks and Managerial Response to Non-Fundamental Price Shocks

54 Pages Posted: 10 Aug 2017 Last revised: 28 Nov 2018

See all articles by Ferhat Akbas

Ferhat Akbas

University of Illinois at Chicago

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business

M. Fikret Polat

University of Maryland - Department of Accounting & Information Assurance

Musa Subasi

University of Maryland-College Park - Robert H. Smith School of Business

Date Written: November 2018

Abstract

We examine whether boardroom connections help managers identify non-fundamental price shocks. We find that managers of well-connected firms are less likely to cut investment in response to exogenous non-fundamental drops in stock prices. Moreover, firms with stronger corporate governance and less managerial entrenchment are more successful at cultivating the informational benefits of boardroom connections. We further find that executive networks and director connections to board members at firms in the same industry are more effective at insulating firm investment from the adverse effects of exogenous non-fundamental shocks. Taken together, our findings suggest that improving managers’ assessment of firm fundamentals is an important channel through which director networks add value to the firm.

Keywords: Director networks; non-fundamental price shocks; corporate governance; corporate investment

JEL Classification: G3, G14, L14

Suggested Citation

Akbas, Ferhat and Hann, Rebecca N. and Polat, M. Fikret and Subasi, Musa, Director Networks and Managerial Response to Non-Fundamental Price Shocks (November 2018). Available at SSRN: https://ssrn.com/abstract=3016106 or http://dx.doi.org/10.2139/ssrn.3016106

Ferhat Akbas

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60076
United States

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

M. Fikret Polat

University of Maryland - Department of Accounting & Information Assurance ( email )

Robert H. Smith School of Business
College Park, MD 20742-9157
United States

Musa Subasi (Contact Author)

University of Maryland-College Park - Robert H. Smith School of Business ( email )

University of Maryland-College Park
4332N Van Munching Hall
College Park, MD 20742
United States
301-314-1055 (Phone)

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