Why do firms allow their CEOs to join trade associations? An embeddedness view

Ju-Fang Yen, Yan-Shing Chen, Chung-Hua Shen and Chih-Yung Lin

International Review of Economics & Finance, 2014, vol. 32, issue C, 47-61

Abstract: This paper investigates the potential benefits provided by the directorship of CEOs in trade associations. Specifically, we argue that directorship in trade associations enhances the personal connections (social networks) of CEOs, translating into bank loan favors. Empirically, we find that firms with CEOs holding trade association directorships enjoy larger loans, lower rates and longer loan maturities from both privately-owned and government-owned banks. Moreover, firms with CEOs holding directorships in major trade associations enjoy better privileges. These benefits expand during financial crisis. Our results help explain why CEOs prefer holding directorships in trade associations and why well-connected CEOs are paid more.

Keywords: CEO; Social networks; Trade associations; Bank loan contracts; Financial crisis (search for similar items in EconPapers)
JEL-codes: G21 G31 G32 L31 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:32:y:2014:i:c:p:47-61

DOI: 10.1016/j.iref.2014.01.006

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