External Networking and Internal Firm Governance

نویسنده

  • Cesare Fracassi
چکیده

External network ties between CEOs and directors in major U.S. corporations may limit the e¤ectiveness of internal corporate governance. Using comprehensive biographical data on the managers and directors of S&P 1500 companies, we identify connections between directors and their …rms’CEOs through external directorships, past employment, education, and other activities (e.g. golf clubs or charity organizations). Consistent with an expectation of weaker monitoring, we …nd that …rms with powerful CEOs are disproportionately likely to add directors with ties to the CEO to the board. Once on the board, such directors are more likely to buy company stock in the open market at the same time as the CEO, even though there is no evidence that they (or the CEO) have better information than other outside directors. Their companies are also less likely to do company-prompted earnings restatements. Turning to real investment choices, we …nd that acquisitions are more frequent among …rms with more connections between their directors and CEO, particularly when those directors serve on the executive committee. We also …nd that merger bids by such …rms destroy value for shareholders: on average, bidding …rms lose $354 million in the three days surrounding merger bids, $282 million more than bidders with fewer connections between the board and the CEO. Moreover, …rms with more network ties between directors and the CEO have lower aggregate market valuations than other …rms. Both valuation e¤ects are most pronounced in …rms with weak shareholder rights. Finally, we …nd little evidence that recent governance reforms have reduced the frequency of social ties between directors and their …rms’CEOs, suggesting that a broader notion of independence, which accounts for social ties between directors and management, might increase the e¤ectiveness of future governance reforms. We would like to thank Avanidhar Subrahmanyam, Mark Grinblatt, Albert Sheen and seminar participants at Oregon and UCLA for helpful comments. We acknowledge …nancial support from the Fink Center for Finance and Invesments (UCLA) and the Price Center for Entrepreneurial Studies (UCLA).

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

منابع مشابه

Takeover and Monitor under External Corporate Control

We study how both external corporate governance factors and internal corporate governance factors jointly affect the large shareholder’s takeover or monitor decision. The large shareholders monitor the management and have option to takeover the firm. External corporate governance forces impose stealing costs to the manager. In equilibrium, large shareholder’s takeover or monitoring decision, ta...

متن کامل

An Empirical Investigation of Internal Governance∗

Acharya, Myers, and Rajan (2009) theorize that self-serving actions and rent extraction by CEOs can be constrained by subordinate managers when the managers’ efforts are needed in production. This force, which they call internal governance, works best when the CEO and the managers are both important to firm output, in the sense that their relative contributions to firm value are balanced. We em...

متن کامل

The impact of interwoven integration practices on supply chain value addition and firm performance

Drawing on the supply chain (SC) management literature, this article conceptualizes and empirically tests a framework that shows how both external and internal integration practices are significant and positively associated with SC value addition and firm performance. The framework also tests the impact of value addition as a reinforcing factor on firm performance. The outcome of this investiga...

متن کامل

Corporate Governance and Firm Efficiency:

This paper applies a two-stage, double bootstrapping data envelope analysis (DEA) approach to investigate whether and to what extent various distinctive corporate governance practices affect productive efficiency in a sample of 461 publicly listed manufacturing firms in China between 1999 and 2002. We find that firm efficiency is negatively related to state ownership while positively related to...

متن کامل

The Effect of Divergent Corporate Governance on Global Diversification Wealth Effect across Industries

The more profound global diversification wealth effect for acquiring firm shareholders in the last decade as well as corporate governance characteristics are found varying with the industry affiliations of the acquirers. The divergent corporate governance across industries appears to explain the differential wealth effect. Manufacturing industries benefit the most through globalization but thei...

متن کامل

ذخیره در منابع من


  با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

عنوان ژورنال:

دوره   شماره 

صفحات  -

تاریخ انتشار 2008