Directors’ Ties to Non-CEO Executives: Information Advantage or Entrenchment?

52 Pages Posted: 14 May 2019

See all articles by Udi Hoitash

Udi Hoitash

Northeastern University - Accounting Group

Anahit Mkrtchyan

Northeastern University - D’Amore-McKim School of Business

Date Written: April 15, 2019

Abstract

We examine how connections between independent directors and non-CEO executives influence board performance. This overlooked form of within-firm ties can increase board effectiveness by improving directors’ access to firm-specific information. Alternatively, such connections may weaken board monitoring by undermining directors’ independence. Consistent with the former, we find that firms with director–executive ties have stronger CEO turnover-performance sensitivity, make better acquisition decisions, and are less likely to engage in financial misconduct. Overall, the evidence suggests that, unlike director–CEO ties that were shown to adversely impact board monitoring, director–executive connections enhance board performance and help reign in the CEO.

Keywords: Social Networks, Board Monitoring, CEO Turnover, Acquisitions, Financial Misconduct

JEL Classification: G34

Suggested Citation

Hoitash, Udi and Mkrtchyan, Anahit, Directors’ Ties to Non-CEO Executives: Information Advantage or Entrenchment? (April 15, 2019). Available at SSRN: https://ssrn.com/abstract=3372471 or http://dx.doi.org/10.2139/ssrn.3372471

Udi Hoitash

Northeastern University - Accounting Group ( email )

360 Huntington Ave.
Boston, MA 02115
United States
671-373-5839 (Phone)

Anahit Mkrtchyan (Contact Author)

Northeastern University - D’Amore-McKim School of Business ( email )

360 Huntington Ave.
Boston, MA 02115
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
28
Abstract Views
245
PlumX Metrics