The Effects of Internal Board Networks: Evidence from Closed-End Funds

56 Pages Posted: 30 Apr 2018 Last revised: 13 Jun 2018

See all articles by Matthew E. Souther

Matthew E. Souther

University of South Carolina - Darla Moore School of Business

Date Written: May 31, 2018

Abstract

Recent literature emphasizes the importance of a director’s external network of social connections. I use a sample of closed-end funds to show that internal, within-board connections are also significant determinants of shareholder value. I find that boards with shared education, employment, and family backgrounds exhibit lower market values, higher expense ratios, higher director compensation levels, and an increased likelihood of financial misrepresentation. Director turnover is lower within these boards, and new director appointments are more likely to share connections with incumbent directors. I conclude that internal board networks negatively impact a firm’s governance environment and overall monitoring quality.

Keywords: Boards of director networks, Social ties, Director compensation, Board independence, Closed-end funds, Disclosure

JEL Classification: G30, G34, L14

Suggested Citation

Souther, Matthew, The Effects of Internal Board Networks: Evidence from Closed-End Funds (May 31, 2018). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=3163884 or http://dx.doi.org/10.2139/ssrn.3163884

Matthew Souther (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States

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