Financial expertise of directors

Güner, A. Burak; Malmendier, Ulrike; Tate, Geoffrey

doi:10.1016/j.jfineco.2007.05.009

Cited by 636 publications

(118 citation statements)

References 57 publications

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“…The most commonly used board characteristics are board size [1][2][3] and board independence [3][4][5][10][11][12][13]. Since late the 2000s, additional board characteristics have been introduced: Directors with different areas of expertise and experiences [10,[14][15][16], foreign directorships [17,18], female director positions [19][20][21], and nominations of certain numbers of outside directors over 69 years [9].…”

Section: Introductionmentioning

confidence: 99%

“…However, the effect on firm value varies across studies with different board structures. Board independence, the presence of outside directors, is typically considered to strengthen director monitoring of managers and increase firm value [4,5,13,14]. On the other hand, Bhagat and Black [11] find no association between board independence and Tobin's Q, which is a proxy for firm value, whereas Yermack [3] finds a negative association.…”

Section: Introductionmentioning

confidence: 99%

“…This study addresses those issues by considering a comprehensive set of board characteristics from prior studies [3,8,14,17,19]. This paper provides an integrated view by investigating in higher dimensions of board characteristics suggested in the aforementioned prior work.…”

Section: Introductionmentioning

confidence: 99%

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Sustainable Causal Interpretation with Board Characteristics: Caveat Emptor

2020

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The study of a causal interpretation of board and firm characteristics, that is, a hidden dependence relationship on the causal inference among board and firm characteristics, is an important but unaddressed issue in the corporate governance literature. Using diverse advanced statistical methods and focusing on Tobin's Q, we find that (i) not all board variables previously found to be significant are "robust" to latent variable data analysis, and (ii) those variables that are consistently significant differ markedly in latent structural equation analysis. Our analyses provide researchers interested in board issues with an important caveat: Focusing on the dependence structure of available board variables affected by latent factors may introduce a new horizon in corporate finance.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Sustainable Causal Interpretation with Board Characteristics: Caveat Emptor

2020

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“…Network ties appear to enhance value by facilitating information flow in a variety of contexts: venture capital investment (Hochberg, Ljungqvist, and Lu (2007)), mutual fund investment (Cohen, Frazzini, and Malloy (2008)), analyst recommendations (Cohen, Frazzini, and Malloy (2010)), and corporate investment (Fracassi (2008)). However, network ties also appear to weaken corporate governance, leading to distortions in director selection (Kuhnen (2009)), CEO retention decisions (Nguyen-Dang (2008)), and corporate investment (Guner, Malmendier, and Tate (2008)). In addition, several recent papers argue that network connections through cross-directorships lead to higher executive compensation (Larcker et al (2005), Barnea and Guedj (2007), and Hwang and Kim (2009)).…”

mentioning

confidence: 99%

External Networking and Internal Firm Governance

Fracassi¹,

Tate

2012

The Journal of Finance

Self Cite

791

524

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We use panel data on S&P 1500 companies to identify external network connections between directors and CEOs. We find that firms with more powerful CEOs are more likely to appoint directors with ties to the CEO. Using changes in board composition due to director death and retirement for identification, we find that CEO-director ties reduce firm value, particularly in the absence of other governance mechanisms to substitute for board oversight. Moreover, firms with more CEO-director ties engage in more value-destroying acquisitions. Overall, our results suggest that network ties with the CEO weaken the intensity of board monitoring.EXECUTIVES AND DIRECTORS OF major corporations are linked in many ways. They may serve together on the board of directors of another company or they may have worked together, either as employees or directors, in the past. They may also be connected outside their employment networks. Executives may play golf at the same country clubs, attend Business Roundtable meetings together, or serve as trustees for the same charitable organizations. Or, they may have graduated from the same MBA programs. Such network connections between the management groups of different firms may increase value for shareholders by creating conduits through which valuable information can flow from one firm to another.1 However, pre-existing network connections between executives and directors within a firm may undermine independent corporate governance, reducing firm value. Kilduff and Tsai (2003), McPherson, Smith-Lovin, and Cook (2001), Laumann (1973), and Marsden (1987.2 Subrahmanyam (2008) constructs a model in which firms trade off information flow about managerial ability against lax monitoring in deciding whether to add networked directors to the board. 154The Journal of Finance R We test whether network connections between management and potential directors influence director selection and subsequent firm performance. We find that firms with more powerful chief executive officers (CEOs) are more likely to add new directors with pre-existing network ties to the CEO. Furthermore, firms with more CEO-director connections have significantly lower valuations. Consistent with weaker board monitoring, high-connection firms make more frequent acquisitions, but their merger bids destroy $473 million of shareholder value on average, $354 million more than the bids of other firms. The effects are concentrated in firms with weak shareholder rights, suggesting that strong governance along other dimensions can partially substitute for effective monitoring by the board of directors.Following the wave of corporate scandals in the early 2000s, lawmakers mandated increases in the independence of corporate boards. Major U.S. exchanges now require the majority of directors in listed firms to be independent. In addition, new regulations have heightened independence requirements for key board committees. Yet, there is little empirical evidence linking greater board independence to better firm performance. One potential ...

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“…Moreover, previous studies on social ties mainly concentrate on the impact of direct ties on various firm-level economic outcomes (Claessens, Feijen, & Laeven, 2008;Engelberg et al, 2012;Faccio, Masulis, & Mcconnell, 2006;Güner, Malmendier, & Tate, 2008;Khatami et al, 2016). Recently, a growing literature has focused on examining both the direct and indirect social ties of the overall network (interlocking centrality; Benson et al, 2018;Chuluun et al, 2014;El-Khatib, Fogel, & Jandik, 2015;Skousen et al, 2018).…”

mentioning

confidence: 99%

Do social ties matter for corporate bond yield spreads? Evidence from China

Qiu

Xiao

2019

Corporate Governance

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Research Question/Issue: This paper studies the effect of top management team (TMT) network centrality on corporate bond yield spreads. In additional analyses, we examine the hierarchical structures of TMT and study which parts contribute to the decrease in bond yield spreads. We also examine the mediating roles (including informed trading probability, media coverage, political ties, financial ties, and bond ratings) and the moderating roles (including marketization and analysts following) in the correlation between TMT network centrality and corporate bond yield spreads.Research Findings/Insights: This paper finds that firms with high TMT network centrality are significantly negatively correlated with lower bond yield spreads. The findings are robust after controlling for a series of sensitivity checks and endogenous concerns. The results of the hierarchical structures show that the decrease of bond spreads is accounted for CFOs' networks and board members' networks, whereas the role of CEOs' networks is not apparent. More importantly, after controlling CEOs'

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Financial expertise of directors

Cited by 636 publications

References 57 publications

Sustainable Causal Interpretation with Board Characteristics: Caveat Emptor

Sustainable Causal Interpretation with Board Characteristics: Caveat Emptor

External Networking and Internal Firm Governance

Do social ties matter for corporate bond yield spreads? Evidence from China

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