The price of boardroom social capital: The effects of corporate demand for external connectivity

Stephen P. Ferris, David Javakhadze and Yun Liu

Journal of Banking & Finance, 2020, vol. 111, issue C

Abstract: In this study we examine the effect of boardroom social capital, defined as the aggregate benefits from the social networks of outside directors, on director compensation. Using a large panel of nine thousand firm-year observations for the period 2007–2013, we find that boardroom social capital is positively priced. Further analysis shows that firms pay a premium for networked directors. Firms that have suffered adverse events such as a bad merger, performance declines, or dividend cuts, pay a higher connection premium. We determine that well-connected directors perform important board roles and hold multiple directorships. Overall, our results are consistent with an efficient contracting explanation for boardroom pay.

Keywords: Board of directors; Director compensation; Agency theory; Social capital; Social networks (search for similar items in EconPapers)
JEL-codes: G30 Z13 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:111:y:2020:i:c:s0378426619303024

DOI: 10.1016/j.jbankfin.2019.105729

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