Abstract
Firms with central boards of directors earn superior risk-adjusted stock returns. A long (short) position in the most (least) central firms earns average annual returns of 4.68%. Firms with central boards also experience higher future return-on-assets growth and more positive analyst forecast errors. Return prediction, return-on-assets growth, and analyst errors are concentrated among high growth opportunity firms or firms confronting adverse circumstances, consistent with boardroom connections mattering most for firms standing to benefit most from information and resources exchanged through boardroom networks. Overall, our results suggest that director networks provide economic benefits that are not immediately reflected in stock prices.
Highlights
Social and economic networks are a central feature of virtually all economic activities
An innovation of our paper is that we take a macro-level view on the association between boards’ well-connectedness and firm performance
Boardroom networks provide an important conduit of support, influence, and information flow that can affect the economic performance of firms in the network
Summary
Social and economic networks are a central feature of virtually all economic activities. This is a serious concern because our goal is to develop characterizations of the networks created by shared board directorates rather than imperfect proxies for firm size That is, those firms with more direct ties to outside boards are closer to other boards on average and are better positioned to broker communications and resource exchanges between boards. This approach ensures that the firm’s network characteristics are publicly observable prior to the beginning of the return accumulation period.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
