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Directors as Connectors: The Impact of the External Networks of Directors on Firms

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  • Quoc-Anh Do

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques (Sciences Po) - Sciences Po - Sciences Po)

  • Yen-Teik Lee

    (SIS - Singapore Management University)

  • Bang Dang Nguyen

    (CAM - University of Cambridge [UK])

Abstract

The external networks of directors significantly impact firm value and decisions. Surrounding close gubernatorial elections, local firms with directors connected to winners increase value by 4.1% over firms connected to losers. Director network's value increases with network strength and activities, and is not due to network homophily. Connected firms are more likely to receive state subsidies, loans, and tax credits. They obtain better access to bank loans, borrow more, pay lower interest, invest and employ more, and enjoy better long-term performance. Network benefits are concentrated on connected firms, possibly through quid pro quo deals, and unlikely spread to industry competitors.

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  • Quoc-Anh Do & Yen-Teik Lee & Bang Dang Nguyen, 2016. "Directors as Connectors: The Impact of the External Networks of Directors on Firms," Working Papers hal-03393196, HAL.
    • Handle: RePEc:hal:wpaper:hal-03393196
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03393196
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    2. Marco Battaglini & Valerio Leone Sciabolazza & Eleonora Patacchini, 2020. "Effectiveness of Connected Legislators," American Journal of Political Science, John Wiley & Sons, vol. 64(4), pages 739-756, October.

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