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Network connections, CEO compensation and involuntary turnover: The impact of a friend of a friend

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  • Balsam, Steven
  • Kwack, So Yean
  • Lee, Jae Young

Abstract

We show that hard to observe, indirect connections between a CEO and “independent” board members are associated with higher CEO compensation. While we find this result for the “friend of a friend” connection, we do not find it for direct connections, i.e. friends sitting on the board. We postulate that this differential result is caused by directors with readily observable connections to the CEO being wary of provoking outrage. In contrast we find both types of connections associated with reduced involuntary CEO turnover, suggesting that outrage is not as big a concern, e.g., compensation is the foci of stakeholders.

Suggested Citation

  • Balsam, Steven & Kwack, So Yean & Lee, Jae Young, 2017. "Network connections, CEO compensation and involuntary turnover: The impact of a friend of a friend," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 220-244.
    • Handle: RePEc:eee:corfin:v:45:y:2017:i:c:p:220-244
    DOI: 10.1016/j.jcorpfin.2017.05.001
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