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The value of firm networks: A natural experiment on board connections

Author

Listed:
  • Faia, Ester
  • Mayer, Maximilian
  • Pezone, Vincenzo

Abstract

We present causal evidence on the e↵ect of boardroom networks on firm value and compensation policies. We exploit a ban on interlocking directorates of Italian financial and insurance companies as exogenous variation and show that firms that lose centrality in the network experience negative abnormal returns around the announcement date. The key driver of our results is the role of boardroom connections in reducing asymmetric information. The complementarities with the input-output and cross-ownership networks are consistent with this channel. Using hand-collected data, we also show that network centrality has a positive e↵ect on directors' compensation, providing evidence of rent sharing.

Suggested Citation

  • Faia, Ester & Mayer, Maximilian & Pezone, Vincenzo, 2021. "The value of firm networks: A natural experiment on board connections," SAFE Working Paper Series 269, Leibniz Institute for Financial Research SAFE, revised 2021.
    • Handle: RePEc:zbw:safewp:269
    DOI: 10.2139/ssrn.3552485
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    Cited by:

    1. Ricardo Giglio & Thomas Lux, 2021. "The Core of the Global Corporate Network," Networks and Spatial Economics, Springer, vol. 21(3), pages 681-705, September.

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    More about this item

    Keywords

    Firm Networks; Natural Experiment; Executives' Compensation; Interlocking Directorates;
    All these keywords.

    JEL classification:

    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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