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From fiction to fact: the impact of CEO social networks

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  • Kirchmaier, Thomas
  • Stathopoulos, Konstantinos

Abstract

This paper investigates the relationship between a CEO’s social network, firm identity, and firm performance. There are two competing theories that predict contradictory outcomes. Following social network theory, one would expect a positive relation between social networks and firm performance, while agency theory in general and Bebchuk’s managerial power approach in particular predicts a negative relationship between social networks and firm performance. Based on a new and comprehensive measure of CEOs social networks, we observe for 363 non-financial firms in the UK that the size of a CEO’s social network affects firm performance negatively. Even so, growth companies are actively seeking CEOs with a large social network, which is in line with the social network theory. Still, we find evidence in support of the argument that well-connected CEOs use the power they obtain through their social network to the detriment of shareholders.

Suggested Citation

  • Kirchmaier, Thomas & Stathopoulos, Konstantinos, 2008. "From fiction to fact: the impact of CEO social networks," LSE Research Online Documents on Economics 24427, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:24427
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    File URL: http://eprints.lse.ac.uk/24427/
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    Cited by:

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    2. Elsayed, Mohamed & Elshandidy, Tamer & Ahmed, Yousry, 2022. "Corporate failure in the UK: An examination of corporate governance reforms," International Review of Financial Analysis, Elsevier, vol. 82(C).
    3. Elena Semenova, 2022. "The small world of German CEOs: a multi-method analysis of the affiliation network structure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(2), pages 519-550, June.
    4. Fuchs, Florian & Fuess, Roland & Jenkinson, Tim & Morkoetter, Stefan, 2017. "Winning a Deal in Private Equity: Do Educational Networks Matter?," Working Papers on Finance 17155, University of St. Gallen, School of Finance.
    5. Goergen, Marc & Renneboog, Luc & Zhao, Yang, 2019. "Insider trading and networked directors," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 152-175.
    6. Zhao, Y., 2010. "The role of directors’ professional and social networks in CEO compensation and the managerial labour market," Other publications TiSEM 42a65171-00c0-46e2-800c-b, Tilburg University, School of Economics and Management.
    7. Philip L. Hersch & Jodi E. Pelkowski, 2014. "Does General Manager Networking Affect Choice of Trade Partners in Major League Baseball?," Journal of Sports Economics, , vol. 15(6), pages 601-616, December.
    8. repec:zbw:bofrdp:2012_017 is not listed on IDEAS
    9. Francis, Bill & Hasan, Iftekhar & John, Kose & Waisman, Maya, 2012. "Urban agglomeration and CEO compensation," Bank of Finland Research Discussion Papers 17/2012, Bank of Finland.
    10. Francis, Bill B. & Hasan, Iftekhar & John, Kose & Waisman, Maya, 2016. "Urban Agglomeration and CEO Compensation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 51(6), pages 1925-1953, December.
    11. Thomas Begley & Naresh Khatri & Eric Tsang, 2010. "Networks and cronyism: A social exchange analysis," Asia Pacific Journal of Management, Springer, vol. 27(2), pages 281-297, June.
    12. Godechot, Olivier & Horton, Joanne & Millo, Yuval, 2019. "Structural exchange pays off: Reciprocity in boards and executive compensations in US firms (1990-2015)," MaxPo Discussion Paper Series 19/1, Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo).

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    More about this item

    Keywords

    CEO; boards of directors; social network; accounting performance;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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