The Corporate Demand for External Connectivity: Pricing Boardroom Social Capital

Journal of Banking and Finance, Vol. 111, February 2020, Article 105729, 1-20

63 Pages Posted: 3 Apr 2017 Last revised: 13 Nov 2020

See all articles by Stephen P. Ferris

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

David Javakhadze

Florida Atlantic University

Yun Liu

Claremont Colleges - Keck Graduate Institute

Date Written: October 3, 2020

Abstract

In this study we examine the effect of boardroom social capital, defined as the aggregate benefits
from the social networks of outside directors, on director compensation. Using a large panel of
nine thousand firm-year observations for the period 2007-2013, we find that boardroom social
capital is positively priced. Further analysis shows that firms pay a premium for networked
directors. Firms that have suffered adverse events such as a bad merger, performance declines, or
dividend cuts, pay a higher connection premium. We determine that well-connected directors
perform important board roles and hold multiple directorships. Overall, our results are consistent
with an efficient contracting explanation for boardroom pay.

Keywords: Board of Directors, Director Compensation, Agency Theory, Social Capital, Social Networks

JEL Classification: G30, Z13

Suggested Citation

Ferris, Stephen P. and Javakhadze, David and Liu, Yun, The Corporate Demand for External Connectivity: Pricing Boardroom Social Capital (October 3, 2020). Journal of Banking and Finance, Vol. 111, February 2020, Article 105729, 1-20, Available at SSRN: https://ssrn.com/abstract=2941943 or http://dx.doi.org/10.2139/ssrn.2941943

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

David Javakhadze

Florida Atlantic University ( email )

College of Busines
777 Glades Road
Boca Raton, FL 33433
United States
561-297-2914 (Phone)

Yun Liu (Contact Author)

Claremont Colleges - Keck Graduate Institute ( email )

535 Watson Drive
Claremont, CA 91711
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
136
Abstract Views
1,098
rank
258,607
PlumX Metrics