What's in a Name? The Valuation Effect of Directors' Sharing of Surnames

61 Pages Posted: 1 Apr 2017 Last revised: 26 Oct 2020

See all articles by Tan Youchao

Tan Youchao

Southwestern University of Finance and Economics (SWUFE)

Jason Zezhong Xiao

University of Macau ; Cardiff Business School, Cardiff University

Cheng (Colin) Zeng

Hong Kong Polytechnic University

Hong Zou

The University of Hong Kong - Faculty of Business and Economics

Date Written: September 11, 2020

Abstract

Using surname sharing as a novel measure of social ties, we examine the effect of directors’ surname sharing on firm value. We find that boards with greater surname homogeneity are associated with lower firm value. This finding is not driven by familial ties. The negative effect of surname sharing on firm value is more pronounced when directors share rare surnames and when firms operate in regions with stronger clan systems, but is attenuated by stronger corporate governance mechanisms. The market reacts positively to plausibly exogenous director resignations that reduce director surname sharing, and negatively to board appointments that increase director surname sharing. Director surname sharing lowers firm value by reducing director dissension, granting excess executive compensation, and increasing related-party transactions. Overall, our results suggest that directors’ surname sharing, an easy-to-trace but previously neglected social tie, can have significant economic consequences.

Keywords: Surname, Social Tie, Board Diversity, Firm Value, Board Voting, Executive Compensation

JEL Classification: G02, G32, M14

Suggested Citation

Youchao, Tan and Xiao, Jason Zezhong and Zeng, Cheng and Zou, Hong, What's in a Name? The Valuation Effect of Directors' Sharing of Surnames (September 11, 2020). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2943154 or http://dx.doi.org/10.2139/ssrn.2943154

Tan Youchao

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Cardiff Business School, Cardiff University ( email )

Aberconway building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

Cheng Zeng

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Hong Zou (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

China

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