Social networks and risk taking: Evidence from corporate control activities

• Main Author: LEE, Yen Teik
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: Social networks; mergers and acquisitions; corporate risk-taking; CEO; board of directors; Corporate Finance; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/5661; https://ink.library.smu.edu.sg/context/lkcsb_research/article/6660/viewcontent/2012_Yen_Teik_Lee_Social_networks_and_risk_taking.pdf
• Institution: Singapore Management University

This paper investigates the impact of social ties between the Chief Executive Officer (CEO) andboard members on corporate risk-taking in mergers and acquisitions (M&As) and on shareholdervalue. Using a measure of CEO-director connections in a large sample of U.S. firms from 2000 to2010, we document that boardroom connections lower firm acquisitiveness. If connected CEOsundertake M&As, they are less likely to choose focus acquisitions, and more likely to pay in stock.CEO-board connections do not enhance firm value in M&As. Higher levels of boardroomconnection are associated with lower announcement returns and lower subsequent return on assets.Our results are robust to alternative explanations and various robustness checks.