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Do CEO-Board ties affect the firm's cost of equity?
[La proximité entre le dirigeant et les administrateurs a-t-elle un impact sur le coût des fonds propres ?]

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  • Cédric van Appelghem

    (LITEM - Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay - IMT-BS - Institut Mines-Télécom Business School - IMT - Institut Mines-Télécom [Paris], UEVE - Université d'Évry-Val-d'Essonne)

  • Pascal Nguyen

    (MRM - Montpellier Research in Management - UPVM - Université Paul-Valéry - Montpellier 3 - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School - UM - Université de Montpellier)

Abstract

The education of the French elite within a restricted circle of prestigious schools leads to strong social ties inside the boardroom. This paper examines the impact of these ties on a firm's cost of equity. Our results show that the strength of CEO-Boardties is associated with a higher cost of equity due to the risk of managerial opportunism induced by weaker board monitoring. This effect is amplified when the CEO is firmly entrenched due a longer tenure or dual role as chairman of the board. It is however moderatedwhen other control mechanisms, such as the presence of a large controlling shareholder or extensive analyst following, can substitute for deficient boardmonitoring. Overall, our results highlight the cost arising from the existence of social networks in the boardroom.

Suggested Citation

  • Cédric van Appelghem & Pascal Nguyen, 2020. "Do CEO-Board ties affect the firm's cost of equity? [La proximité entre le dirigeant et les administrateurs a-t-elle un impact sur le coût des fonds propres ?]," Working Papers hal-02880367, HAL.
    • Handle: RePEc:hal:wpaper:hal-02880367
    Note: View the original document on HAL open archive server: https://hal.umontpellier.fr/hal-02880367
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