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Executive networks and global stock liquidity

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  • Jared F. Egginton
  • Garrett A. McBrayer
  • William R. McCumber

Abstract

We examine whether executive networks affect the information environment around stocks in an international setting. We find that firms whose executives are more connected enjoy lower stock liquidity costs, as executive networks lower information asymmetries for market participants. However, the positive effects of executive networks on stock liquidity are subsumed in countries where investor protections are weaker. We empirically separate network effects into an information channel and a power channel, and find that the information channel dominates where institutions foster transparency and accountability. Effects of the power channel are visible where institutions are weak. These results suggest that the detrimental effects of network connections (e.g., managerial entrenchment, extraction of private benefits, propensity to commit fraud) documented in prior studies create space for asymmetric information around stocks when formal institutions are weak. Our results are robust to alternative model specifications and tests for endogeneity.

Suggested Citation

  • Jared F. Egginton & Garrett A. McBrayer & William R. McCumber, 2022. "Executive networks and global stock liquidity," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(4), pages 911-939, December.
    • Handle: RePEc:bla:jfnres:v:45:y:2022:i:4:p:911-939
    DOI: 10.1111/jfir.12302
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    References listed on IDEAS

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    Cited by:

    1. Michael S. Luehlfing & William R. McCumber & Huan Qiu, 2023. "CEO Social Capital and the Value Relevance of Accounting Metrics," Risks, MDPI, vol. 11(4), pages 1-35, April.

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