Do CEO-Board ties affect the firm's cost of equity?

La proximité entre le dirigeant et les administrateurs a-t-elle un impact sur le coût des fonds propres ?

Cédric van Appelghem () and Pascal Nguyen
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Cédric van Appelghem: LITEM - Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay - IMT-BS - Institut Mines-Télécom Business School - IMT - Institut Mines-Télécom [Paris], UEVE - Université d'Évry-Val-d'Essonne

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Abstract: The education of the French elite within a restricted circle of prestigious schools leads to strong social ties inside the boardroom. This paper examines the impact of these ties on a firm's cost of equity. Our results show that the strength of CEO-Boardties is associated with a higher cost of equity due to the risk of managerial opportunism induced by weaker board monitoring. This effect is amplified when the CEO is firmly entrenched due a longer tenure or dual role as chairman of the board. It is however moderatedwhen other control mechanisms, such as the presence of a large controlling shareholder or extensive analyst following, can substitute for deficient boardmonitoring. Overall, our results highlight the cost arising from the existence of social networks in the boardroom.

Keywords: Social networks; Opportunism; Agency conflicts; Monitoring; Cost of capital; Relations sociales; Opportunisme; Conflits d’agence; Contrôle disciplinaire; Coût du capital (search for similar items in EconPapers)
Date: 2020-06-24
Note: View the original document on HAL open archive server: https://hal.umontpellier.fr/hal-02880367v1
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