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What Are Friends for? CEO Networks, Pay and Corporate Governance

In: Corporate Governance

Author

Listed:
  • Rayna Brown

    (University of Melbourne)

  • Ning Gao

    (University of Manchester)

  • Edward Lee

    (University of Manchester)

  • Konstantinos Stathopoulos

    (University of Manchester)

Abstract

We investigate the impact of CEO networking on compensation arrangements. Unlike existing studies that are largely based on board interlocks, we use a unique measure that calculates the direct ties the CEO has created during her life. We show that a CEO’s compensation is significantly affected by her power in the managerial labour market. We find that the size of the CEO network is positively related to the level of CEO compensation and inversely related to its pay-performance sensitivity. We interpret our results as direct evidence that managerial power influences compensation. However, in firms where shareholders rights are well protected, the impact of the CEO network over pay arrangements diminishes. This implies that outrage cost and governance reduces managerial power in pay negotiation. Overall, our results are consistent with the predictions of the managerial power approach.

Suggested Citation

  • Rayna Brown & Ning Gao & Edward Lee & Konstantinos Stathopoulos, 2012. "What Are Friends for? CEO Networks, Pay and Corporate Governance," Springer Books, in: Sabri Boubaker & Bang Dang Nguyen & Duc Khuong Nguyen (ed.), Corporate Governance, edition 127, pages 287-307, Springer.
    • Handle: RePEc:spr:sprchp:978-3-642-31579-4_12
    DOI: 10.1007/978-3-642-31579-4_12
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    Citations

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    Cited by:

    1. Birhanu, Addis Gedefaw & Geiler, Philipp & Renneboog, Luc & Zhao, Yang, 2021. "Acquisition experience and director remuneration," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    2. Berardi, Nicoletta & Lalanne, Marie & Seabright, Paul, 2018. "Professional networks and their coevolution with executive careers: Evidence from North America and Europe," SAFE Working Paper Series 243, Leibniz Institute for Financial Research SAFE.
    3. Fuchs, Florian & Füss, Roland & Jenkinson, Tim & Morkoetter, Stefan, 2021. "Winning a deal in private equity: Do educational ties matter?," Journal of Corporate Finance, Elsevier, vol. 66(C).
    4. Lalanne, Marie & Seabright, Paul, 2016. "The old boy network: The impact of professional networks on remuneration in top executive jobs," SAFE Working Paper Series 123, Leibniz Institute for Financial Research SAFE.
    5. Birhanu, Addis & Geiler, Philipp & Renneboog, Luc & Zhao, Yang, 2021. "Acquisition experience and director remuneration," Other publications TiSEM 6c1d41ae-5e2a-4868-b1af-1, Tilburg University, School of Economics and Management.
    6. Tauni, Muhammad Zubair & Yousaf, Salman & Ahsan, Tanveer, 2020. "Investor-advisor Big Five personality similarity and stock trading performance," Journal of Business Research, Elsevier, vol. 109(C), pages 49-63.
    7. Li, Xindan & Geng, Ziyang & Subrahmanyam, Avanidhar & Yu, Honghai, 2017. "Do wealthy investors have an informational advantage? Evidence based on account classifications of individual investors," Journal of Empirical Finance, Elsevier, vol. 44(C), pages 1-18.
    8. Shi, Lina & Gong, Stephen & Wang, Xingang, 2021. "Social network, corporate governance, and rent extraction in CEO compensation: Evidence from spatial econometric models," The British Accounting Review, Elsevier, vol. 53(4).
    9. Fuchs, Florian & Fuess, Roland & Jenkinson, Tim & Morkoetter, Stefan, 2017. "Winning a Deal in Private Equity: Do Educational Networks Matter?," Working Papers on Finance 17155, University of St. Gallen, School of Finance.
    10. Godechot, Olivier & Horton, Joanne & Millo, Yuval, 2019. "Structural exchange pays off: Reciprocity in boards and executive compensations in US firms (1990-2015)," MaxPo Discussion Paper Series 19/1, Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo).
    11. Conyon, Martin J. & Haß, Lars Helge & Vergauwe, Skrålan & Zhang, Zhifang, 2019. "Foreign experience and CEO compensation," Journal of Corporate Finance, Elsevier, vol. 57(C), pages 102-121.
    12. Liu, Yun & Nanda, Vikram & Onal, Bunyamin & Silveri, Sabatino, 2021. "Employment mobility and pay for sector performance," Journal of Corporate Finance, Elsevier, vol. 70(C).
    13. Elena Semenova, 2022. "The small world of German CEOs: a multi-method analysis of the affiliation network structure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(2), pages 519-550, June.
    14. Florian Fuchs & Roland Füss & Tim Jenkisnon & Stefan Morkoetter, 2018. "Should Investors Care Where Private Equity Managers Went To School?," Working Papers on Finance 1806, University of St. Gallen, School of Finance.
    15. Wang, Jianxin & Huang, Cailing & Xu, Lin & Zhang, Junhuan, 2023. "Drinking into friends: Alcohol drinking culture and CEO social connections," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 982-995.
    16. Nicoletta Berardi & Marie Lalanne & Paul Seabright, 2019. "Professional Networks and their Coevolution with Executive Careers," Working papers 723, Banque de France.

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