Corporate Governance Propagation through Overlapping Directors

Christa H. S. Bouwman
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Christa H. S. Bouwman: Case Western Reserve University and Wharton Financial Institutions Center, University of PA

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: How do firms determine which governance practices to adopt? This paper proposes, and empirically verifies, that observed governance practices are partly the outcome of network effects among firms with common directors. While firms attempt to select directors whose other directorships are at firms with similar governance practices ("familiarity effect"), this matching of governance practices is imperfect because other factors also affect the director choice. This generates an "influence effect" as directors acquainted with different practices at other firms influence the firm's governance to move toward the practices of those other firms. These network effects cause governance practices to converge.

JEL-codes: D80 G32 G34 R10 (search for similar items in EconPapers)
Date: 2010-12
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:upafin:11-23

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