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Social Networks in The Boardroom

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  • Kramarz, Francis
  • Thesmar, David

Abstract

This paper provides empirical evidence consistent with the facts that (1) social networks may strongly affect board composition and (2) social networks may be detrimental to corporate governance. Our empirical investigation relies on a large dataset on executives and outside directors of corporations listed on the Paris stock exchange over the 1992-2003 period. This data source is a matched employer employee dataset providing both detailed information on directors/CEOs and information on the firm employing them. We first find a very strong and robust correlation between the CEO's network and that of his directors. Networks of former high ranking civil servants are the most active in shaping board composition. Our identification strategy takes into account (1) firm and directors' fixed effects and (2) matching of firms and director along one observable and one unobservable characteristic. We then turn to real effects of such network activity. We find that firms where these networks are most active are less likely to change CEO when they underperform. This suggests that social networks in the board room impair corporate governance.

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Bibliographic Info

Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2006-20.

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Length: 44 p.
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:hit:hitcei:2006-20

Note: November 15, 2006
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  1. L'affaire Proglio
    by obouba in Olivier Bouba-Olga on 2010-01-24 11:45:00
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Cited by:
  1. Clare Leaver & Jordi Blances i Vidal, 2007. "Behaviour in Networks of Collaborators: Theory and Evidence from the English Judiciary," Economics Series Working Papers 354, University of Oxford, Department of Economics.
  2. Ponzo, Michela & Scoppa, Vincenzo, 2010. "The use of informal networks in Italy: Efficiency or favoritism?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(1), pages 89-99, January.
  3. Spagnolo, Giancarlo & Lippert, Steffen, 2004. "Networks of Relations," Working Paper Series in Economics and Finance 570, Stockholm School of Economics, revised 03 May 2005.
  4. Chiraz Ben Ali & Frédéric Teulon, 2014. "CEO Monitoring and board effectiveness - Resolving CEO compensation issue," Working Papers 2014-045, Department of Research, Ipag Business School.
  5. Zudenkova, Galina, 2011. "Cronyism in Business, Public Sector and Politics," Working Papers 2072/151814, Universitat Rovira i Virgili, Department of Economics.
  6. Lars Calmfors & Giancarlo Corsetti & Michael P. Devereux & Seppo Honkapohja & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2007. "Chapter 6: Economic nationalism," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 133-147, 02.
  7. Bramoullé, Y. & Goyal, S., 2009. "Favoritism," Cambridge Working Papers in Economics 0942, Faculty of Economics, University of Cambridge.
  8. Saygin, Perihan Ozge & Weber, Andrea & Weynandt, Michèle, 2014. "Coworkers, Networks, and Job Search Outcomes," IZA Discussion Papers 8174, Institute for the Study of Labor (IZA).
  9. Renee B. Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2010. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 58-107, March.
  10. Stuart, Toby E. & Yim, Soojin, 2010. "Board interlocks and the propensity to be targeted in private equity transactions," Journal of Financial Economics, Elsevier, vol. 97(1), pages 174-189, July.
  11. Erich Battistin & Clara Graziano & G. Parigi, 2008. "Connections and Performance in Bankers' Turnover: Better Wed over the Mixen than over the Moor," CESifo Working Paper Series 2439, CESifo Group Munich.
  12. Braggion, F., 2008. "Managers, Firms and (Secret) Social Networks: The Economics of Freemasonry," Discussion Paper 2008-36, Tilburg University, Center for Economic Research.
  13. Ponzo, Michela & Scoppa, Vincenzo, 2011. "A simple model of favouritism in recruitment," Research in Economics, Elsevier, vol. 65(2), pages 78-88, June.

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