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Does the Rolodex Matter? Corporate Elite's Small World and the Effectiveness of Boards of Directors

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  • Bang Dang Nguyen

    () (Finance and Accounting Group, University of Cambridge Judge Business School, Cambridge CB2 1AG, United Kingdom)

Abstract

This paper investigates the impact of social ties on the effectiveness of boards of directors. When the chief executive officer (CEO) and a number of directors belong to the same social networks, the CEO is less likely to be dismissed for poor performance. The results are robust to different measures of performance and networks, and consistent after controlling for CEO ability and connected boards' superior information. Although being ousted is costly for all CEOs--who must then devote time to finding new employment and only succeed in 62% of cases--socially connected CEOs are more likely to find new and better employment after a forced departure. Evidence from this paper suggests that close social ties between board members and CEOs impact the workings of the board of directors. This paper was accepted by Brad Barber, Teck Ho, and Terrance Odean, special issue editors.

Suggested Citation

  • Bang Dang Nguyen, 2012. "Does the Rolodex Matter? Corporate Elite's Small World and the Effectiveness of Boards of Directors," Management Science, INFORMS, vol. 58(2), pages 236-252, February.
  • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:2:p:236-252
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    File URL: http://dx.doi.org/10.1287/mnsc.1110.1457
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    References listed on IDEAS

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    Cited by:

    1. repec:ipg:wpaper:201413 is not listed on IDEAS
    2. Goergen, Marc & Limbach, Peter & Scholz, Meik, 2015. "Mind the gap: The age dissimilarity between the chair and the CEO," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 136-158.
    3. Rebérioux, Antoine & Roudaut, Gwenael, 2016. "Gender Quota inside the Boardroom: Female Directors as New Key Players?," CEPREMAP Working Papers (Docweb) 1603, CEPREMAP.
    4. Sandra Cavaco & Patricia Crifo & Antoine Rebérioux & Gwenaël Roudaut, 2014. "Independent directors: less informed, but better selected? New evidence from a two-way director-firm fixed effect model," EconomiX Working Papers 2014-58, University of Paris Nanterre, EconomiX.
    5. Bengtsson, Ola & Hsu, David H., 2015. "Ethnic matching in the U.S. venture capital market," Journal of Business Venturing, Elsevier, vol. 30(2), pages 338-354.
    6. Quoc-Anh Do & Yen-Teik Lee & Bang Dang Nguyen, 2013. "Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections," Sciences Po publications 15, Sciences Po.
    7. Quoc-Anh Do & Yen-Teik Lee & Bang Dang Nguyen, 2016. "Directors as Connectors: The Impact of the External Networks of Directors on Firms," Sciences Po publications 52, Sciences Po.
    8. repec:spo:wpecon:info:hdl:2441/7o52iohb7k6srk09n0dcia0po is not listed on IDEAS
    9. repec:eee:corfin:v:45:y:2017:i:c:p:401-427 is not listed on IDEAS
    10. repec:gam:jijfss:v:5:y:2017:i:4:p:34-:d:123235 is not listed on IDEAS
    11. Elvira Sojli & Wing Wah Tham, 2017. "Foreign political connections," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(2), pages 244-266, February.
    12. Schmidt, Breno, 2015. "Costs and benefits of friendly boards during mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 117(2), pages 424-447.
    13. Marco Di Maggio & Francesco Franzoni & Amir Kermani & Carlo Sommavilla, 2017. "The Relevance of Broker Networks for Information Diffusion in the Stock Market," NBER Working Papers 23522, National Bureau of Economic Research, Inc.
    14. Ferreira, Daniel & Ginglinger, Edith & Laguna, Marie-Aude & Skalli, Yasmine, 2017. "Board Quotas and Director-Firm Matching," CEPR Discussion Papers 12117, C.E.P.R. Discussion Papers.
    15. Liu, Yun, 2014. "Outside options and CEO turnover: The network effect," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 201-217.
    16. Cavaco, Sandra & Crifo, Patricia & Rebérioux, Antoine & Roudaut, Gwenael, 2017. "Independent directors: Less informed but better selected than affiliated board members?," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 106-121.
    17. Rey Dang & Anne Françoise Bender & Marie José Scotto, 2014. "Women on French Corporate Board of Directors: How Do They Differ from their Male Counterparts?," Working Papers 2014-54, Department of Research, Ipag Business School.
    18. repec:eee:corfin:v:47:y:2017:i:c:p:46-71 is not listed on IDEAS
    19. Seth D. Zimmerman, 2016. "Elite Colleges and Upward Mobility to Top Jobs and Top Incomes," NBER Working Papers 22900, National Bureau of Economic Research, Inc.
    20. repec:ipg:wpaper:2014-054 is not listed on IDEAS
    21. repec:bla:jomstd:v:54:y:2017:i:7:p:1050-1078 is not listed on IDEAS
    22. Rey Dang & Duc Khuong Nguyen & Linh-Chi Vo, 2014. "Does the Glass Ceiling Exist? A Longitudinal Study of Women’s Progress on French Corporate Boards," Working Papers 2014-239, Department of Research, Ipag Business School.

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