Abstract
AbstractThis study examines the effect of CEO‐connected directors on firm value. Empirical analyses are conducted on US firms between 1999 and 2016 using a local supply of directors as an instrumental variable. CEO‐connected directors contribute to the firm by resolving information asymmetry. I find that firms with more CEO‐connected directors produce more innovative outputs than those with fewer CEO‐connected directors. However, such directors exacerbate managerial entrenchment. Hence, it is necessary to establish rules for the board of directors that reflect firm‐specific characteristics, such as information transparency.
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