Are bonds blind? Board-CEO social networks and firm risk

Yaoyao Fan, Agyenim Boateng, Kim Cuong Ly and Yuxiang Jiang

Journal of Corporate Finance, 2021, vol. 68, issue C

Abstract: We examine the impact of social networks between independent directors and the CEO on firm risk. Employing the deaths and retirements of socially connected independent directors and the passage of the 2002 Sarbanes-Oxley Act for two identifications, we find that board-CEO social networks have a positive impact on firm risk. Specifically, CEOs who are socially connected to their independent directors are motivated to adopt riskier investment, operating and financing strategies. This positive influence is more pronounced for prior under-performing firms and for CEOs with low power or overconfidence, indicating that board-CEO social networks act as career insurance and a power-enhancing mechanism to encourage managerial risk-taking.

Keywords: Board-CEO social networks; Internal governance mechanism; Firm risk; Deaths and retirements of directors (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:68:y:2021:i:c:s0929119921000432

DOI: 10.1016/j.jcorpfin.2021.101922

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