From Fiction to Fact: The Impact of CEO Social Networks
AbstractThis 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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Bibliographic InfoPaper provided by Financial Markets Group in its series FMG Discussion Papers with number dp608.
Date of creation: Apr 2008
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-12 (All new papers)
- NEP-BEC-2008-04-12 (Business Economics)
- NEP-NET-2008-04-12 (Network Economics)
- NEP-SOC-2008-04-12 (Social Norms & Social Capital)
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- 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.
- 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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