Directors’ Ties to Non-CEO Executives: Information Advantage or Entrenchment?
52 Pages Posted: 14 May 2019
Date Written: April 15, 2019
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: Suggested Citation