The proposed study examines the effect of CEO-board social connections on corporate policies. Motivated by the independent board view and collaborative board view, I propose two opposing hypotheses explaining the effect of CEO-board connections on corporate policies: monitoring hypothesis and advising hypothesis.
In my first essay, I validate the two competing hypotheses of CEO-board connections by investigating the effect of CEO-board connections on monitoring and advising role of the board, and firm valuation. I find that CEO-board connections have a negative effect on board monitoring and positive effect on board advising and firm valuation. The results are robust to endogeneity concerns and different model specifications. Disentangling the Channels, I also show that the predicted effect of CEO-board connections on board monitoring and advising have opposite effects on firm valuation. Lastly, I provide evidence that the effect of CEO-board connections on firm performance is stronger in firms with high growth opportunities.
In my second essay, I investigate the effect of CEO-board connections on the cost of equity capital. The agency- and quite-life-perspective of the monitoring hypothesis of CEO-board connections predict two opposite effects of CEO-board connections on the cost of equity capital. Consistent with the predictions of the quiet life perspective, I provide evidence that CEO-board connections have a negative and statistically significant effect on the cost of the equity capital. The possible channels facilitating the effect include low corporate risk-taking and high information environment. The results are robust to endogeneity problems, different measures of CEO-board connections and cost of equity capital, and alternative model specifications. I also show that the impact of CEO-board connections on the cost of equity capital is likely to be stronger in firms with high financial constraints, and in firms with both high financial constraints and high growth opportunities because these types of firm are likely to rely less on internal sources of capital and more on external sources of capital. Moreover, country-level cultures and investor protections moderate the effect of CEO-board connections on the cost of equity capital.
In my last essay, I examine the effect of CEO-board connections on cross-border mergers and acquisitions. The monitoring- and advising-hypothesis of CEO-board connections predict two opposite effect of CEO-board connections on the cross-border merger activity and value creation. Consistent with the predictions of the advising hypothesis, I provide evidence that investors react positively to the cross-border merger announcements by firms with high CEO-board connections. The results are robust to placebo tests and different model specifications. The effect is stronger in firms with low internal growth opportunities, which rely more on external growth potential, including cross-border mergers to main sustainable future growth rate, and for deals with both target and acquirer in the same cultures. Firms with high CEO-board connections are likely to experience a lower level of cross-border merger activities. Finally, I show that CEO-board connections are positively associated with post-merger long-term performance of the merged firm, implying that firms with CEO-board social connections maximize shareholders’ wealth in cross-border merger deals.
|Commitee:||Garcia-Feijoo, Luis, Pennathur, Anita K.|
|School:||Florida Atlantic University|
|School Location:||United States -- Florida|
|Source:||DAI-A 82/2(E), Dissertation Abstracts International|
|Subjects:||Finance, Business administration|
|Keywords:||CEO-board social connections, Corporate risk-taking, Cross-border mergers and acquisitions, Firm valuation, Information environment, Cost of equity capital|
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