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Boardroom centrality and firm performance

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  • Larcker, David F.
  • So, Eric C.
  • Wang, Charles C.Y.

Abstract

Firms with central boards of directors earn superior risk-adjusted stock returns. A long (short) position in the most (least) central firms earns average annual returns of 4.68%. Firms with central boards also experience higher future return-on-assets growth and more positive analyst forecast errors. Return prediction, return-on-assets growth, and analyst errors are concentrated among high growth opportunity firms or firms confronting adverse circumstances, consistent with boardroom connections mattering most for firms standing to benefit most from information and resources exchanged through boardroom networks. Overall, our results suggest that director networks provide economic benefits that are not immediately reflected in stock prices.

Suggested Citation

  • Larcker, David F. & So, Eric C. & Wang, Charles C.Y., 2013. "Boardroom centrality and firm performance," Journal of Accounting and Economics, Elsevier, vol. 55(2), pages 225-250.
    • Handle: RePEc:eee:jaecon:v:55:y:2013:i:2:p:225-250
    DOI: 10.1016/j.jacceco.2013.01.006
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    More about this item

    Keywords

    Board of director networks; Analyst forecasts; Market efficiency;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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