Director Networks, Mobility, and Governance: Evidence from Corporate Bankruptcies
40 Pages Posted: 17 Aug 2017 Last revised: 14 Oct 2018
Date Written: March 9, 2018
We exploit a quasi-natural experiment to investigate how directors' reliance on professional connections in their search for new directorships impacts board composition and corporate governance policies. For directors who have not held board positions or employment at bankruptcy-filing firms, we find that those who nevertheless have current or past connections to other directors with explicit work histories at bankruptcy-filing firms experience a decline in mobility around the time of filing: directors with these connections have a 5 percent lower chance of finding new board positions within a year. Additionally, we find these suspended director network ties make board recruitment of new directors more difficult. As a result, average board size decreases and average director tenure increases. Lastly, we provide evidence that director mobility can interfere with corporate governance, as firms with less mobile directors show improvements in shareholder rights.
Keywords: Social networks, labor mobility, corporate governance, bankruptcy
JEL Classification: G30, G33, M12
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