Boardroom Networks and Corporate Investment

66 Pages Posted: 24 Nov 2020 Last revised: 13 Jun 2021

See all articles by Suyong Song

Suyong Song

University of Iowa - Tippie College of Business

Jiawei (Brooke) Wang

University of Iowa - Department of Finance

Date Written: September 30, 2020

Abstract

This paper investigates whether network effects on investment exist and whether firms strategically herd their connected firms. Using novel data on board members, we utilize board-interlock networks where two firms share at least one common board member and estimate network effects on firms' investment decisions. Our identification strategy to resolve the endogeneity issue is to adopt the characteristics of the peers of peers as legitimate instrumental variables. Empirical findings confirm significant network effects on firms' investment and show that firms strategically follow their connected firms with high quality information.

Keywords: Network effects, strategic herding, information quality, board interlock, investment

JEL Classification: D25, D81, G30, L14, L20

Suggested Citation

Song, Suyong and Wang, Jiawei, Boardroom Networks and Corporate Investment (September 30, 2020). Available at SSRN: https://ssrn.com/abstract=3705724 or http://dx.doi.org/10.2139/ssrn.3705724

Suyong Song (Contact Author)

University of Iowa - Tippie College of Business ( email )

W360 Pappajohn Business Building
21 E Market St
Iowa City, IA 52242
United States

Jiawei Wang

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States

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