Networks and Corporate Governance

Social connections between top executives and board members are prevalent. They might seat together on different boards, share leisure activities, have worked together in the past or have graduated from the same university. These connections might allow beneficial exchange of information, favoring firm value. They might also bias individuals and lead to detrimental effects on firms' corporate governance.

This project aims at understanding the role of these connections on two specific firms' policies: the recruitment of board members and the presence of women at the top hierarchy. We focus on US listed firms between 2000 and 2018. We use a combination of web scraping techniques to gather data on firms - made publicly available by law - together with social network analysis tools to explore the structure of the executives' network - build by linking executives' CVs.

In one sub-project, we first investigate whether social connections lead to recommendations for the hiring of new board members. Secondly, we assess whether recommendations in turn help provide extra information on candidates or allow favoritism to take place. We use director fixed effects from firm performance equations to measure directors’ ability and compare abilities of referred and non referred new directors.

In a second sub-project, we take a different perspective by moving from the networks of individuals to the networks of firms. We investigate whether connections between firms can explain the increasing trend in the percentage of women holding top corporate positions. In particular, how much of this increase is due to the hiring behavior of other firms in the market? We look at several company networks (networks by stock market index, by sector, or networks created through networks of executives and directors) and control for unobserved firm characteristics that may vary over time, as well as time aggregate effects that may have a heterogeneous impact on firms.

A deeper understanding of how social connections influence corporate practices would advance our knowledge on factors shaping individuals’ employment and career success, and incorporate social aspects in the analysis of corporate governance determinants. Our research has policy implications on current hotly debated corporate governance topics (disclosure regulation, gender board quotas). Moreover, our work contributes to the academic literature on gender inequalities, and to the policy debate on the best response to them.