Executive Network Centrality and Stock Liquidity

Abstract

We examine the relationship between stock market liquidity and the network centrality of firm executives. We find that firms whose executive officers are more central in the network of executives have narrower spreads and reduced stock liquidity costs. We use an exogenous network centrality shock of executive turnover and report that liquidity improves after firms hire executives with greater centrality. We present evidence that improved liquidity is attributable to efficient information flows around executives in more advantageous network positions.

Keywords: stock market liquidity, networks, network centrality, information asymmetry, informational trading

JEL Classification: D85, G10, G14, L14