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Why do firms allow their CEOs to join trade associations? An embeddedness view

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  • Yen, Ju-Fang
  • Chen, Yan-Shing
  • Shen, Chung-Hua
  • Lin, Chih-Yung

Abstract

This paper investigates the potential benefits provided by the directorship of CEOs in trade associations. Specifically, we argue that directorship in trade associations enhances the personal connections (social networks) of CEOs, translating into bank loan favors. Empirically, we find that firms with CEOs holding trade association directorships enjoy larger loans, lower rates and longer loan maturities from both privately-owned and government-owned banks. Moreover, firms with CEOs holding directorships in major trade associations enjoy better privileges. These benefits expand during financial crisis. Our results help explain why CEOs prefer holding directorships in trade associations and why well-connected CEOs are paid more.

Suggested Citation

  • Yen, Ju-Fang & Chen, Yan-Shing & Shen, Chung-Hua & Lin, Chih-Yung, 2014. "Why do firms allow their CEOs to join trade associations? An embeddedness view," International Review of Economics & Finance, Elsevier, vol. 32(C), pages 47-61.
    • Handle: RePEc:eee:reveco:v:32:y:2014:i:c:p:47-61
    DOI: 10.1016/j.iref.2014.01.006
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    Cited by:

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    2. Li, Xiaoqing & Fung, Anna & Fung, Hung-Gay & Qiao, Penghao, 2020. "Directorate interlocks and corporate cash holdings in emerging economies: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 244-260.
    3. Batten, Jonathan A. & Jacoby, Gady & Liao, Rose C., 2014. "Corporate yield spreads and real interest rates," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 89-100.

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    More about this item

    Keywords

    CEO; Social networks; Trade associations; Bank loan contracts; Financial crisis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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