IDEAS home Printed from https://ideas.repec.org/a/bla/jfnres/v45y2022i4p911-939.html
   My bibliography  Save this article

Executive networks and global stock liquidity

Author

Listed:
  • Jared F. Egginton
  • Garrett A. McBrayer
  • William R. McCumber

Abstract

We examine whether executive networks affect the information environment around stocks in an international setting. We find that firms whose executives are more connected enjoy lower stock liquidity costs, as executive networks lower information asymmetries for market participants. However, the positive effects of executive networks on stock liquidity are subsumed in countries where investor protections are weaker. We empirically separate network effects into an information channel and a power channel, and find that the information channel dominates where institutions foster transparency and accountability. Effects of the power channel are visible where institutions are weak. These results suggest that the detrimental effects of network connections (e.g., managerial entrenchment, extraction of private benefits, propensity to commit fraud) documented in prior studies create space for asymmetric information around stocks when formal institutions are weak. Our results are robust to alternative model specifications and tests for endogeneity.

Suggested Citation

  • Jared F. Egginton & Garrett A. McBrayer & William R. McCumber, 2022. "Executive networks and global stock liquidity," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(4), pages 911-939, December.
    • Handle: RePEc:bla:jfnres:v:45:y:2022:i:4:p:911-939
    DOI: 10.1111/jfir.12302
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jfir.12302
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jfir.12302?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    2. Butler, Alexander W. & Grullon, Gustavo & Weston, James P., 2005. "Stock Market Liquidity and the Cost of Issuing Equity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(2), pages 331-348, June.
    3. Rwan El‐Khatib & Dobrina Jandik & Tomas Jandik, 2021. "Network centrality, connections, and social capital: Evidence from CEO insider trading gains," The Financial Review, Eastern Finance Association, vol. 56(3), pages 433-457, August.
    4. Han N. Ozsoylev & Johan Walden & M. Deniz Yavuz & Recep Bildik, 2014. "Investor Networks in the Stock Market," The Review of Financial Studies, Society for Financial Studies, vol. 27(5), pages 1323-1366.
    5. Vikramaditya Khanna & E. Han Kim & Yao Lu, 2015. "CEO Connectedness and Corporate Fraud," Journal of Finance, American Finance Association, vol. 70(3), pages 1203-1252, June.
    6. El-Khatib, Rwan & Fogel, Kathy & Jandik, Tomas, 2015. "CEO network centrality and merger performance," Journal of Financial Economics, Elsevier, vol. 116(2), pages 349-382.
    7. Ravi, Rahul & Hong, Youna, 2014. "Firm opacity and financial market information asymmetry," Journal of Empirical Finance, Elsevier, vol. 25(C), pages 83-94.
    8. Shane A. Corwin & Paul Schultz, 2012. "A Simple Way to Estimate Bid‐Ask Spreads from Daily High and Low Prices," Journal of Finance, American Finance Association, vol. 67(2), pages 719-760, April.
    9. Fogel, Kathy & Jandik, Tomas & McCumber, William R., 2018. "CFO social capital and private debt," Journal of Corporate Finance, Elsevier, vol. 52(C), pages 28-52.
    10. Ferris, Stephen P. & Javakhadze, David & Rajkovic, Tijana, 2017. "The international effect of managerial social capital on the cost of equity," Journal of Banking & Finance, Elsevier, vol. 74(C), pages 69-84.
    11. McInish, Thomas H & Wood, Robert A, 1992. "An Analysis of Intraday Patterns in Bid/Ask Spreads for NYSE Stocks," Journal of Finance, American Finance Association, vol. 47(2), pages 753-764, June.
    12. Akbas, Ferhat & Meschke, Felix & Wintoki, M. Babajide, 2016. "Director networks and informed traders," Journal of Accounting and Economics, Elsevier, vol. 62(1), pages 1-23.
    13. Venkat R. Eleswarapu & Kumar Venkataraman, 2006. "The Impact of Legal and Political Institutions on Equity Trading Costs: A Cross-Country Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 19(3), pages 1081-1111.
    14. Engelberg, Joseph & Gao, Pengjie & Parsons, Christopher A., 2012. "Friends with money," Journal of Financial Economics, Elsevier, vol. 103(1), pages 169-188.
    15. Shane A. Corwin, 2003. "The Determinants of Underpricing for Seasoned Equity Offers," Journal of Finance, American Finance Association, vol. 58(5), pages 2249-2279, October.
    16. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
    17. Arne Risa Hole, 2006. "Calculating Murphy-Topel variance estimates in Stata: A simplified procedure," Stata Journal, StataCorp LP, vol. 6(4), pages 521-529, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michael S. Luehlfing & William R. McCumber & Huan Qiu, 2023. "CEO Social Capital and the Value Relevance of Accounting Metrics," Risks, MDPI, vol. 11(4), pages 1-35, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pham, Mia Hang, 2020. "In law we trust: Lawyer CEOs and stock liquidity," Journal of Financial Markets, Elsevier, vol. 50(C).
    2. Mansoor Afzali & Minna Martikainen, 2021. "Network centrality and value relevance of insider trading: Evidence from Europe," The Financial Review, Eastern Finance Association, vol. 56(4), pages 793-819, November.
    3. Monomita Nandy & Suman Lodh & Jin Wang & Jaskaran Kaur, 2021. "Does lobbying of firms complement executive networks in determining executive compensation?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4137-4162, July.
    4. Fogel, Kathy & Jandik, Tomas & McCumber, William R., 2018. "CFO social capital and private debt," Journal of Corporate Finance, Elsevier, vol. 52(C), pages 28-52.
    5. Fan, Yaoyao & Jiang, Yuxiang & Jin, Pengcheng & Mai, Yong, 2023. "CEO network centrality and bank risk: Evidence from US Bank holding companies," Journal of Corporate Finance, Elsevier, vol. 83(C).
    6. Nadarajah, Sivathaasan & Duong, Huu Nhan & Ali, Searat & Liu, Benjamin & Huang, Allen, 2021. "Stock liquidity and default risk around the world," Journal of Financial Markets, Elsevier, vol. 55(C).
    7. Chen, Xiao & Chong, Zhaohui & Giudici, Paolo & Huang, Bihong, 2022. "Network centrality effects in peer to peer lending," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 600(C).
    8. Jared F. Egginton & Garrett A. McBrayer, 2019. "Does it pay to be forthcoming? Evidence from CSR disclosure and equity market liquidity," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(2), pages 396-407, March.
    9. Jackowicz, Krzysztof & Kozłowski, Łukasz, 2019. "Social ties between SME managers and bank employees: Financial consequences vs. SME managers' perceptions," Emerging Markets Review, Elsevier, vol. 40(C), pages 1-1.
    10. Xing, Jieli & Zhang, Yongjie & Xiong, Xiong, 2023. "Social capital, independent director connectedness, and stock price crash risk," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 786-804.
    11. García-Feijóo, Luis & Hossain, Md Miran & Javakhadze, David, 2021. "Managerial social capital and dividend smoothing," Journal of Corporate Finance, Elsevier, vol. 66(C).
    12. Hasan, Iftekhar & He, Qing & Lu, Haitian, 2020. "The impact of social capital on economic attitudes and outcomes," Journal of International Money and Finance, Elsevier, vol. 108(C).
    13. Amin, Abu & Chourou, Lamia & Kamal, Syed & Malik, Mahfuja & Zhao, Yang, 2020. "It’s who you know that counts: Board connectedness and CSR performance," Journal of Corporate Finance, Elsevier, vol. 64(C).
    14. Ferris, Stephen P. & Javakhadze, David & Liu, Yun, 2020. "The price of boardroom social capital: The effects of corporate demand for external connectivity," Journal of Banking & Finance, Elsevier, vol. 111(C).
    15. Krishnamurti, Chandrasekhar & Chowdhury, Hasibul & Han, Hien Duc, 2021. "CEO centrality and stock price crash risk," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    16. Fang, Ming & Francis, Bill & Hasan, Iftekhar & Wu, Qiang, 2022. "External social networks and earnings management," The British Accounting Review, Elsevier, vol. 54(2).
    17. Ryan Davis & Todd Griffith & Brian Roseman & Serhat Yildiz, 2021. "The effects of exchange listing on market quality: Evidence from over‐the‐counter uplistings," The Financial Review, Eastern Finance Association, vol. 56(4), pages 645-669, November.
    18. Anderson, Christopher W. & Babajide Wintoki, M. & Xi, Yaoyi, 2024. "CFO social capital, liquidity management, and the market value of cash✰," Journal of Banking & Finance, Elsevier, vol. 163(C).
    19. Zhang, Lu & Peng, Fei & Shan, Yuan George & Chen, Yiping, 2023. "CEO social capital and litigation risk," Finance Research Letters, Elsevier, vol. 51(C).
    20. Fan, Yaoyao & Ly, Kim Cuong & Jiang, Yuxiang, 2023. "Institutional investor networks and firm innovation: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 89(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfnres:v:45:y:2022:i:4:p:911-939. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/sfaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.