Abstract
This paper investigates the impact of social ties on the effectiveness of boards of directors. When the chief executive officer (CEO) and a number of directors belong to the same social networks, the CEO is less likely to be dismissed for poor performance. The results are robust to different measures of performance and networks, and consistent after controlling for CEO ability and connected boards' superior information. Although being ousted is costly for all CEOs—who must then devote time to finding new employment and only succeed in 62% of cases—socially connected CEOs are more likely to find new and better employment after a forced departure. Evidence from this paper suggests that close social ties between board members and CEOs impact the workings of the board of directors. This paper was accepted by Brad Barber, Teck Ho, and Terrance Odean, special issue editors.
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