Are bonds blind? Board-CEO social networks and firm risk

Fan, Yaoyao; Boateng, Agyenim; Ly, Kim Cuong; Jiang, Yuxiang

Abstract

We examine the impact of social networks between independent directors and the CEO on firm risk. Employing the deaths and retirements of socially connected independent directors and the passage of the 2002 Sarbanes-Oxley Act for two identifications, we find that board-CEO social networks have a positive impact on firm risk. Specifically, CEOs who are socially connected to their independent directors are motivated to adopt riskier investment, operating and financing strategies. This positive influence is more pronounced for prior under-performing firms and for CEOs with low power or overconfidence, indicating that board-CEO social networks act as career insurance and a power-enhancing mechanism to encourage managerial risk-taking.

Citation

Fan, Y., Boateng, A., Ly, K. C., & Jiang, Y. (2021). Are bonds blind? Board-CEO social networks and firm risk. Journal of Corporate Finance, 68, Article 101922. https://doi.org/10.1016/j.jcorpfin.2021.101922

• Journal Article Type: Article
• Acceptance Date: Feb 26, 2021
• Online Publication Date: Mar 18, 2021
• Publication Date: Jun 1, 2021
• Deposit Date: Apr 19, 2021
• Publicly Available Date: Sep 19, 2022
• Journal: Journal of Corporate Finance
• Print ISSN: 0929-1199
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 68
• Article Number: 101922
• DOI: https://doi.org/10.1016/j.jcorpfin.2021.101922
• Keywords: Strategy and Management; Economics and Econometrics; Business and International Management; Finance
• Public URL: https://nottingham-repository.worktribe.com/output/5482920
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S0929119921000432?via%3Dihub