Boardroom Networks and the Cross-Section of Stock Returns: Evidence from the Netherlands

35 Pages Posted: 30 Apr 2013 Last revised: 22 Jan 2015

See all articles by Erik Feyen

Erik Feyen

World Bank - Finance & Markets Global Practice; Ahead Analytics Inc

Date Written: December 2014

Abstract

Board directorships link organizations and directors forming a complex, continuously evolving corporate boardroom network. Using a novel and unique comprehensive monthly boardroom network dataset for the Netherlands, home to one of the largest and most liquid European stock markets, this paper finds that a firm’s connectedness in this network is a strong predictor of subsequent risk-adjusted monthly stock returns. Consistent with a weakened corporate governance hypothesis, the paper documents a negative impact on future returns for firms with relatively well-connected directors. And consistent with an access to resources hypothesis, the paper finds a positive impact for firms that are relatively well-connected through inter-board ties. Importantly, while past director ties are informative for future returns, past inter-board ties are not. Fama-MacBeth regressions suggest the results are not confounded by other board characteristics. Connectedness is also systematically mispriced in analysts’ forecasts. Taken together, the findings strongly suggest that boardroom networks simultaneously exert distinct positive and negative effects through complex corporate governance, informational and other channels.

Keywords: Boardroom networks; social networks; board of directors; stock returns; corporate governance

JEL Classification: G3

Suggested Citation

Feyen, Erik H. B., Boardroom Networks and the Cross-Section of Stock Returns: Evidence from the Netherlands (December 2014). Available at SSRN: https://ssrn.com/abstract=2257925 or http://dx.doi.org/10.2139/ssrn.2257925

Erik H. B. Feyen (Contact Author)

World Bank - Finance & Markets Global Practice ( email )

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Ahead Analytics Inc ( email )

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