Dependence on the External Network Ties of the Outside Directors: Evidence from Groups of Large-Scale Enterprises in Korea

Abstract

Using a sample of chaebol groups in Korea, we investigate the impact of outside directors who had been public officials on the firm’s performance. We find that chaebol-affiliated firms prefer to co-opt the outside directors who had positions of higher public rank than the other outside directors who were public officials. By Bonacich power centrality, we find that the network ties among ex-public officials has a positive relation with the firm’s performance, such as asset and sales growth rates. This paper’s contribution to the corporate governance literature is that we extend the role of the outside directors on the firm’s performance by focusing on their advisory function, which is little studied. This paper also is the first that measures the political network ties of these directors by using the Bonacich power centrality.