Boardroom Centrality and Firm Performance: Evidence from Private Firms
48 Pages Posted: 1 Mar 2019 Last revised: 18 Jul 2022
Date Written: July 24, 2019
We study the link between boardroom centrality and operating performance in private firms. We argue that the centrality-performance relationship is stronger for private firms whose increased connectedness is likely to provide certification benefits, decrease transaction costs by reducing information asymmetry, and improve access to critical resources. Using a sample of Finnish and Swedish private firms, we find that private firms with more central boards have better performance, growth, and efficiency than private firms with less central boards. Moreover, in a sample of private and public firms, we find that private firms with greater eigenvector centrality outperform size-matched public firms. Subsample analyses further show that networks are crucial for young firms. This is consistent with better connected directors providing firms with informational resources when they need them the most. Overall, our findings show that boardroom interlocks are positively associated with immediate economic benefits to private firms.
Keywords: Social Networks, Board Centrality, Firm Performance, Private Firms
JEL Classification: G3, G14, L14
Suggested Citation: Suggested Citation