Social Networks in the Boardroom

Francis Kramarz () and David Thesmar

No 1940, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper provides empirical evidence consistent with the facts that (1) social networks may strongly affect board composition and (2) social networks may be detrimental to corporate governance. Our empirical investigation relies on a unique dataset on executives and outside directors of corporations listed on the Paris stock exchange over the 1992-2003 period. This data source is a matched employer employee dataset providing both detailed information on directors/CEOs and information on the firm employing them. We first find a very strong and robust correlation between the CEO’s network and that of his directors. Networks of former high ranking civil servants are the most active in shaping board composition. Our identification strategy takes into account (1) differences in unobserved directors’ “abilities” and (2) the unobserved propensity of firms to hire directors from particular networks, irrespective of the CEO’s identity. We then show that the governance of firms run by former civil servants is relatively worse on many dimensions. Former civil servants are less likely to leave their CEO job when their firm performs badly. Secondly, CEOs who are former bureaucrats are more likely to accumulate directorships, and the more they do, the less profitable is the firm they run. Thirdly, the value created by acquisitions made by former bureaucrats is lower. All in all, these firms are less profitable on average.

Keywords: corporate governance; networks (search for similar items in EconPapers)
JEL-codes: J40 L20 Z13 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2006-01
New Economics Papers: this item is included in nep-net and nep-soc
References: View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Published - published in: Journal of the European Economic Association, 2013, 11(4), 780-807

Downloads: (external link)
https://docs.iza.org/dp1940.pdf (application/pdf)

Related works:
Journal Article: SOCIAL NETWORKS IN THE BOARDROOM (2013)
Working Paper: Social networks in the boardroom (2013)
Working Paper: Social Networks in The Boardroom (2007)
Working Paper: Social Networks in the Boardroom (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp1940

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().