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Director Appointments: It Is Who You Know

Author

Listed:
  • Jay CaiThe Le
  • Tu Nguyen
  • Ralph Walkling

Abstract

Using 9,801 director appointments during 2003–2014, we document the dramatic impact of connections. Sixty-nine percent of new directors have professional ties to incumbent boards, a group representing 13 of all potential candidates. Consistent with facilitating coordination and reducing search costs, connections help boards bring in gender diversity, new skills, and new industry background. More complex firms and firms in more competitive environments tend to appoint connected directors and experience better market reactions and higher shareholder votes. Connections to incumbent CEOs, however, result in lower announcement returns and shareholder votes. We use death (merger)-induced network loss (gain) as instruments.

Suggested Citation

  • Jay CaiThe Le & Tu Nguyen & Ralph Walkling, 2022. "Director Appointments: It Is Who You Know," The Review of Financial Studies, Society for Financial Studies, vol. 35(4), pages 1933-1982.
  • Handle: RePEc:oup:rfinst:v:35:y:2022:i:4:p:1933-1982.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhab064
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    Citations

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    Cited by:

    1. Lai Van Vo & Huong Thi Thu Le & Youngbin Kim, 2023. "Board interlocks, career prospects and corporate social responsibility," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 4565-4595, December.
    2. Kim, Hyemin & Fahlenbrach, Rüdiger & Low, Angie, 2023. "CEO networks and the labor market for directors," Journal of Empirical Finance, Elsevier, vol. 70(C), pages 1-21.
    3. Luong, Hoa & Khedmati, Mehdi & Nguyen, Lan Anh & Nigmonov, Asror & Ovi, Nafisa Zabeen & Shams, Syed, 2023. "CEO-director ties and board gender diversity: US evidence," Journal of Behavioral and Experimental Finance, Elsevier, vol. 40(C).
    4. Chen, Chen & Dou, Ying & Kuang, Yu Flora & Naiker, Vic, 2023. "Do professional ties enhance board seat prospects of independent directors with tainted reputations?," Journal of Banking & Finance, Elsevier, vol. 154(C).
    5. Marie Lalanne, 2023. "Network‐based appointments and board diversity," Economica, London School of Economics and Political Science, vol. 90(358), pages 409-452, April.

    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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