The Role of Network Connections for CEO Compensation: Quasi-Experimental Evidence from Changes in Inter-Locking Laws in US and Italy

Projekt Start:01/2019
Forscher:Ester Faia, Jialei Lu, Maximilian Mayer, Vincenzo Pezone, Yiran Wei
Kategorie: Law and Finance
Finanziert von:LOEWE

Topic and Objectives

We present causal evidence on the effect of boardroom networks on firm value and compensation policies. We exploit a ban on interlocking directorates of Italian financial and insurance companies as exogenous variation and show that firms that lose centrality in the network experience negative abnormal returns around the announcement date. The key driver of our results is the role of boardroom connections in reducing asymmetric information. The complementarities with the input-output and cross-ownership networks are consistent with this channel. Using hand-collected data, we also show that network centrality has a positive effect on directors’ compensation, providing evidence of rent sharing.

Zugehörige Working Papers

269Ester Faia, Maximilian Mayer, Vincenzo PezoneThe Value of Firm Networks: A Natural Experiment on Board Connections2020 Law and Finance