Boardroom Network and Corporate Performance: When Who You Know Contributes to What You Know

Accounting

Social Sciences Research Network

Abramova I

Inna Abramova

2021

I study the effect of boardroom network centrality on firm performance. While high boardroom centrality can contribute to a richer information set used by the board in its monitoring, it also likely increases information dissemination, potentially leading to a loss of economic benefits. To isolate the effect of boardroom network centrality on firm performance, I use a novel instrumental variable approach based on director deaths at distant firms in the network. This approach mitigates the biases stemming from factors not related to network centrality: director ability, matching between directors and firms, and director busyness. I find that high boardroom centrality deteriorates firm performance for R&D-intensive firms, firms with intangible assets, and firms with advertising activity. Concurrently, firms that do not have intangible assets or have no advertising activity benefit from boardroom centrality. These findings suggest that for firms with large amounts of information subject to dissemination, the costs of high centrality might outweigh its benefits, thus reducing the firms’ competitive advantage.

Social Sciences Research Network

No

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