IDEAS home Printed from https://ideas.repec.org/p/usg/sfwpfi/201821.html
   My bibliography  Save this paper

Managerial Networks and Shareholder Value: Evidence from Sudden Deaths

Author

Listed:
  • Kirsten Tangaa Nielsen
  • Felix von Meyerinck

Abstract

This paper investigates the causal effect of connections among top executives and directors of different firms on shareholder value using a quasi-natural experiment. Our identification strategy rests on the idea that sudden deaths trigger unexpected and exogenous dissolutions of connections, which enables us to isolate the value of managerial connections by studying stock price reactions at firms where managers connected to a suddenly deceased manager work. Our results show that firms connected to a suddenly deceased manager experience a statistically significant reduction in shareholder value between 1.6 and 2.6 million USD, which is consistent with the notion that managerial connections foster shareholder value. When exploring the cross-sectional variation, we find evidence that connections to inside directors, connections established via previously shared work engagements, and within-industry connections are most valuable.

Suggested Citation

  • Kirsten Tangaa Nielsen & Felix von Meyerinck, 2018. "Managerial Networks and Shareholder Value: Evidence from Sudden Deaths," Working Papers on Finance 1821, University of St. Gallen, School of Finance.
    • Handle: RePEc:usg:sfwpfi:2018:21
    as

    Download full text from publisher

    File URL: http://ux-tauri.unisg.ch/RePEc/usg/sfwpfi/WPF-1821.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Thomas Ferguson & Hans-Joachim Voth, 2008. "Betting on Hitler—The Value of Political Connections in Nazi Germany," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 101-137.
    2. Joseph Engelberg & Pengjie Gao & Christopher A. Parsons, 2013. "The Price of a CEO's Rolodex," The Review of Financial Studies, Society for Financial Studies, vol. 26(1), pages 79-114.
    3. Lauren Cohen & Andrea Frazzini & Christopher Malloy, 2010. "Sell‐Side School Ties," Journal of Finance, American Finance Association, vol. 65(4), pages 1409-1437, August.
    4. Lauren Cohen & Andrea Frazzini & Christopher Malloy, 2008. "The Small World of Investing: Board Connections and Mutual Fund Returns," Journal of Political Economy, University of Chicago Press, vol. 116(5), pages 951-979, October.
    5. Falato, Antonio & Kadyrzhanova, Dalida & Lel, Ugur, 2014. "Distracted directors: Does board busyness hurt shareholder value?," Journal of Financial Economics, Elsevier, vol. 113(3), pages 404-426.
    6. Kelly Shue, 2013. "Executive Networks and Firm Policies: Evidence from the Random Assignment of MBA Peers," The Review of Financial Studies, Society for Financial Studies, vol. 26(6), pages 1401-1442.
    7. Felix Meyerinck & David Oesch & Markus Schmid, 2016. "Is Director Industry Experience Valuable?," Financial Management, Financial Management Association International, vol. 45(1), pages 207-237, March.
    8. Cesare Fracassi & Geoffrey Tate, 2012. "External Networking and Internal Firm Governance," Journal of Finance, American Finance Association, vol. 67(1), pages 153-194, February.
    9. Bruce Johnson, W. & Magee, Robert P. & Nagarajan, Nandu J. & Newman, Harry A., 1985. "An analysis of the stock price reaction to sudden executive deaths : Implications for the managerial labor market," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 151-174, April.
    10. Enrichetta Ravina & Paola Sapienza, 2010. "What Do Independent Directors Know? Evidence from Their Trading," NBER Chapters, in: Corporate Governance, National Bureau of Economic Research, Inc.
    11. Nguyen, Bang Dang & Nielsen, Kasper Meisner, 2010. "The value of independent directors: Evidence from sudden deaths," Journal of Financial Economics, Elsevier, vol. 98(3), pages 550-567, December.
    12. Engelberg, Joseph & Gao, Pengjie & Parsons, Christopher A., 2012. "Friends with money," Journal of Financial Economics, Elsevier, vol. 103(1), pages 169-188.
    13. C. Edward Fee & Charles J. Hadlock & Joshua R. Pierce, 2013. "Managers with and without Style: Evidence Using Exogenous Variation," The Review of Financial Studies, Society for Financial Studies, vol. 26(3), pages 567-601.
    14. Joseph P. H. Fan & Vidhan K. Goyal, 2006. "On the Patterns and Wealth Effects of Vertical Mergers," The Journal of Business, University of Chicago Press, vol. 79(2), pages 877-902, March.
    15. Eitan Goldman & Jörg Rocholl & Jongil So, 2009. "Do Politically Connected Boards Affect Firm Value?," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2331-2360, June.
    16. Hermalin, Benjamin E & Weisbach, Michael S, 1998. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," American Economic Review, American Economic Association, vol. 88(1), pages 96-118, March.
    17. Gerard Hoberg & Gordon Phillips, 2016. "Text-Based Network Industries and Endogenous Product Differentiation," Journal of Political Economy, University of Chicago Press, vol. 124(5), pages 1423-1465.
    18. Pierre Azoulay & Joshua S. Graff Zivin & Jialan Wang, 2010. "Superstar Extinction," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(2), pages 549-589.
    19. Jayachandran, Seema, 2006. "The Jeffords Effect," Journal of Law and Economics, University of Chicago Press, vol. 49(2), pages 397-425, October.
    20. Faccio, Mara & Parsley, David C., 2009. "Sudden Deaths: Taking Stock of Geographic Ties," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(3), pages 683-718, June.
    21. Acemoglu, Daron & Johnson, Simon & Kermani, Amir & Kwak, James & Mitton, Todd, 2016. "The value of connections in turbulent times: Evidence from the United States," Journal of Financial Economics, Elsevier, vol. 121(2), pages 368-391.
    22. Yael V. Hochberg & Alexander Ljungqvist & Yang Lu, 2007. "Whom You Know Matters: Venture Capital Networks and Investment Performance," Journal of Finance, American Finance Association, vol. 62(1), pages 251-301, February.
    23. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 531-542.
    24. Lauren Cohen & Andrea Frazzini, 2008. "Economic Links and Predictable Returns," Journal of Finance, American Finance Association, vol. 63(4), pages 1977-2011, August.
    25. Pat Akey, 2015. "Valuing Changes in Political Networks: Evidence from Campaign Contributions to Close Congressional Elections," The Review of Financial Studies, Society for Financial Studies, vol. 28(11), pages 3188-3223.
    26. Amore, Mario Daniele & Bennedsen, Morten, 2013. "The value of local political connections in a low-corruption environment," Journal of Financial Economics, Elsevier, vol. 110(2), pages 387-402.
    27. Bang Dang Nguyen & Kasper Meisner Nielsen, 2014. "What Death Can Tell: Are Executives Paid for Their Contributions to Firm Value?," Management Science, INFORMS, vol. 60(12), pages 2994-3010, December.
    28. Cesare Fracassi, 2017. "Corporate Finance Policies and Social Networks," Management Science, INFORMS, vol. 63(8), pages 2420-2438, August.
    29. Cai, Ye & Sevilir, Merih, 2012. "Board connections and M&A transactions," Journal of Financial Economics, Elsevier, vol. 103(2), pages 327-349.
    30. Benjamin E. Hermalin & Michael S. Weisbach, 2003. "Boards of directors as an endogenously determined institution: a survey of the economic literature," Economic Policy Review, Federal Reserve Bank of New York, vol. 9(Apr), pages 7-26.
    31. Georg, Co-Pierre & Opolot, Daniel C. & Rose, Michael E., 2017. "Informal intellectual collaboration with central colleagues," Kiel Working Papers 2084, Kiel Institute for the World Economy (IfW Kiel).
    32. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David Schoenherr, 2019. "Political Connections and Allocative Distortions," Journal of Finance, American Finance Association, vol. 74(2), pages 543-586, April.
    2. Ching-Hung Chang & Qingqing Wu, 2021. "Board Networks and Corporate Innovation," Management Science, INFORMS, vol. 67(6), pages 3618-3654, June.
    3. Quoc-Anh Do & Yen-Teik Lee & Bang Dang Nguyen, 2013. "Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections," Working Papers hal-03460972, HAL.
    4. repec:hal:spmain:info:hdl:2441/65rged1j6o9gl9jvp8a09o3eue is not listed on IDEAS
    5. Quoc-Anh Do & Yen-Teik Lee & Bang Dang Nguyen, 2013. "Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections," Working Papers hal-03460972, HAL.
    6. Togan Egrican, Aslı, 2021. "Overlapping board connections with banker directors and corporate loan terms: Evidence from syndicated loans," Global Finance Journal, Elsevier, vol. 50(C).
    7. Bakke, Tor-Erik & Black, Jeffrey R. & Mahmudi, Hamed & Linn, Scott C., 2024. "Director networks and firm value," Journal of Corporate Finance, Elsevier, vol. 85(C).
    8. Chahine, Salim & Fang, Yiwei & Hasan, Iftekhar & Mazboudi, Mohamad, 2019. "Entrenchment through corporate social responsibility: Evidence from CEO network centrality," International Review of Financial Analysis, Elsevier, vol. 66(C).
    9. Jing, Wei & Zhang, Xueyong, 2021. "Online social networks and corporate investment similarity," Journal of Corporate Finance, Elsevier, vol. 68(C).
    10. Faia, Ester & Mayer, Maximilian & Pezone, Vincenzo, 2020. "The Value of Firm Networks: A Natural Experiment on Board Connections," CEPR Discussion Papers 14591, C.E.P.R. Discussion Papers.
    11. Luechinger, Simon & Moser, Christoph, 2020. "The European Commission and the revolving door," European Economic Review, Elsevier, vol. 127(C).
    12. Ozlem Akin & Nicholas S. Coleman & Christian Fons-Rosen & José-Luis Peydró, 2016. "Political Connections: Evidence From Insider Trading Around TARP," Working Papers 935, Barcelona School of Economics.
    13. Hoitash, Udi & Mkrtchyan, Anahit, 2022. "Internal governance and outside directors’ connections to non-director executives," Journal of Accounting and Economics, Elsevier, vol. 73(1).
    14. repec:spo:wpmain:info:hdl:2441/5q8d3q8agf8hdbs42laqdfujkb is not listed on IDEAS
    15. Ozlem Akin & Nicholas S. Coleman & Christian Fons‐Rosen & José‐Luis Peydró, 2021. "Political connections and informed trading: Evidence from TARP," Financial Management, Financial Management Association International, vol. 50(3), pages 619-644, September.
    16. Jackowicz, Krzysztof & Kozłowski, Łukasz, 2019. "Social ties between SME managers and bank employees: Financial consequences vs. SME managers' perceptions," Emerging Markets Review, Elsevier, vol. 40(C), pages 1-1.
    17. Junho Park, 2022. "We are advertis’d by our loving friends: CEO‐connected directors," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3189-3238, September.
    18. repec:hal:spmain:info:hdl:2441/5q8d3q8agf8hdbs42laqdfujkb is not listed on IDEAS
    19. Coulomb, Renaud & Sangnier, Marc, 2014. "The impact of political majorities on firm value: Do electoral promises or friendship connections matter?," Journal of Public Economics, Elsevier, vol. 115(C), pages 158-170.
    20. 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.
    21. Colin P. Green & Swarnodeep Homroy, 2022. "Incorporated in Westminster: Channels and Returns to Political Connection in the United Kingdom," Economica, London School of Economics and Political Science, vol. 89(354), pages 377-408, April.
    22. 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.
    23. Quoc-Anh Do & Yen-Teik Lee & Bang Dang Nguyen, 2016. "Directors as Connectors: The Impact of the External Networks of Directors on Firms," Post-Print hal-03393196, HAL.

    More about this item

    Keywords

    Social networks; Firm value; Sudden death;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:usg:sfwpfi:2018:21. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/cfisgch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.