The Value of Firm Networks: A Natural Experiment on Board Connections

63 Pages Posted: 11 Mar 2020 Last revised: 5 Jul 2022

See all articles by Ester Faia

Ester Faia

Goethe University Frankfurt; Centre for Economic Policy Research (CEPR)

Maximilian Mayer

Goethe University Frankfurt - Faculty of Economics and Business Administration

Vincenzo Pezone

Tilburg University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2021

Abstract

We present causal evidence on the effect of boardroom networks on firm value and compensation policies. We exploit a ban on interlocking directorates of Italian financial and insurance companies as exogenous variation and show that firms that lose centrality in the network experience negative abnormal returns around the announcement date. The key driver of our results is the role of boardroom connections in reducing asymmetric information. The complementarities with the input-output and cross-ownership networks are consistent with this channel. Using hand-collected data, we also show that network centrality has a positive effect on directors’ compensation, providing evidence of rent sharing.

Keywords: Firm Networks, Natural Experiment, Executives’ Compensation, Interlocking Directorates

JEL Classification: D57, G14, G32, L14

Suggested Citation

Faia, Ester and Mayer, Maximilian and Pezone, Vincenzo, The Value of Firm Networks: A Natural Experiment on Board Connections (July 1, 2021). SAFE Working Paper No. 269, Available at SSRN: https://ssrn.com/abstract=3552485 or http://dx.doi.org/10.2139/ssrn.3552485

Ester Faia

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Maximilian Mayer

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

HOME PAGE: http://mayer-max.github.io

Vincenzo Pezone (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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