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Do CEO-board ties affect the firm’s cost of equity?
[La proximité entre le dirigeant et les administrateurs a t'elle un impact sur le coût des fonds propres ?]

Author

Listed:
  • Cédric van Appelghem

    (UEVE - Université d'Évry-Val-d'Essonne, LITEM - Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay - IMT-BS - Institut Mines-Télécom Business School - IMT - Institut Mines-Télécom [Paris])

  • Pascal Nguyen

    (MRM - Montpellier Research in Management - UPVM - Université Paul-Valéry - Montpellier 3 - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School - UM - Université de Montpellier)

Abstract

The education of the French elite within a restricted circle of prestigious schools leads to strong social ties inside the boardroom. This paper examines the impact of those ties on a firm's cost of equity. Our results show that the strength of CEO-directors ties is associated with a higher cost of equity due to the risk of managerial opportunism induced by weaker board monitoring. This effect is amplified when the CEO is firmly entrenched due a longer tenure or dual role as chairman of the board. It is however moderated when other control mechanisms can substitute for a deficient board, such as the presence of a large controlling shareholder or extensive analysts following. Overall, our results highlight the cost arising from the existence of social networks in the boardroom.

Suggested Citation

  • Cédric van Appelghem & Pascal Nguyen, 2021. "Do CEO-board ties affect the firm’s cost of equity? [La proximité entre le dirigeant et les administrateurs a t'elle un impact sur le coût des fonds propres ?]," Post-Print hal-02504331, HAL.
    • Handle: RePEc:hal:journl:hal-02504331
    DOI: 10.3917/cca.271.0111
    as

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