Abstract
This paper empirically tests the hypothesis that there is a trade-off between the benefit and the cost of a CEO-connected director. The effect of a CEO-connected director on firm value is contingent to firm-specific characteristics. The connected director resolves information asymmetry yet deepens agency problem. A CEO-director connection affects firm value positively when other sources of information is scarce. On the other hand, such a connection has an adverse effect when the CEO attempts to extract a private benefit. Thus, it is necessary to distinguish between a governance-enhancing connection and a governance-harming connection.
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