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From Fiction to Fact: The Impact of CEO Social Networks

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  • Thomas Kirchmaier

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  • Konstantinos Stathopoulos

    ()

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    Abstract

    This paper investigates the relationship between a CEO’s social network, firm identity, and firm performance. There are two competing theories that predict contradictory outcomes. Following social network theory, one would expect a positive relation between social networks and firm performance, while agency theory in general and Bebchuk’s managerial power approach in particular predicts a negative relationship between social networks and firm performance. Based on a new and comprehensive measure of CEOs social networks, we observe for 363 non-financial firms in the UK that the size of a CEO’s social network affects firm performance negatively. Even so, growth companies are actively seeking CEOs with a large social network, which is in line with the social network theory. Still, we find evidence in support of the argument that well-connected CEOs use the power they obtain through their social network to the detriment of shareholders.

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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/dp608_Coporate_Governance_at_LSE_004.pdf
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    Bibliographic Info

    Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp608.

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    Date of creation: Apr 2008
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    Handle: RePEc:fmg:fmgdps:dp608

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    Web page: http://www.lse.ac.uk/fmg/

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    Cited by:
    1. Thomas Begley & Naresh Khatri & Eric Tsang, 2010. "Networks and cronyism: A social exchange analysis," Asia Pacific Journal of Management, Springer, vol. 27(2), pages 281-297, June.
    2. Francis, Bill & Hasan, Iftekhar & John, Kose & Waisman , Maya, 2012. "Urban agglomeration and CEO compensation," Research Discussion Papers 17/2012, Bank of Finland.

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