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Social Networks in The Boardroom

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Author Info
Kramarz, Francis
Thesmar, David

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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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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/13501/1/wp2006-20a.pdf
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Publisher 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. Renée Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2008. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," NBER Working Papers 14486, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Steffen Lippert & Giancarlo Spagnolo, 2004. "Networks of Relations," Discussion Papers 28, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  3. Federico Cingano & Paolo Pinotti, 2009. "Politicians at work. The private returns and social costs of political connections," Temi di discussione (Economic working papers) 709, Bank of Italy, Economic Research Department. [Downloadable!]
  4. 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 CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Jordi Blanes i Vidal & Clare Leaver, 2007. "Behaviour in Networks of Collaborators: Theory and Evidence from the English Judiciary," Economics Series Working Papers 354, University of Oxford, Department of Economics. [Downloadable!]
  6. Braggion, F., 2008. "Managers, Firms and (Secret) Social Networks: The Economics of Freemasonry," Discussion Paper 2008-36, Tilburg University, Center for Economic Research. [Downloadable!]
  7. Lars Calmfors & Giancarlo Corsetti & Michael P. Devereux & Seppo Honkapohja & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2007. "EEAG European Economic Advisory Group at CESifo: Report on the European Economy 2007," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 1-156, 02. [Downloadable!]
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