The Effects of Internal Board Networks: Evidence from Closed-End Funds
56 Pages Posted: 30 Apr 2018 Last revised: 13 Jun 2018
Date Written: May 31, 2018
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: Suggested Citation