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From fiction to fact: the impact of CEO social networks

Kirchmaier, Thomas and Stathopoulos, Konstantinos (2008) From fiction to fact: the impact of CEO social networks. Discussion paper, 608. Financial Markets Group, London School of Economics and Political Science, London, UK.

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Abstract

This paper investigates the relationship between a CEO’s social network, firm identity, and firm performance. There are two competing theories that predict contradictory outcomes. Following social network theory, one would expect a positive relation between social networks and firm performance, while agency theory in general and Bebchuk’s managerial power approach in particular predicts a negative relationship between social networks and firm performance. Based on a new and comprehensive measure of CEOs social networks, we observe for 363 non-financial firms in the UK that the size of a CEO’s social network affects firm performance negatively. Even so, growth companies are actively seeking CEOs with a large social network, which is in line with the social network theory. Still, we find evidence in support of the argument that well-connected CEOs use the power they obtain through their social network to the detriment of shareholders.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2008 The Authors
Library of Congress subject classification: H Social Sciences > HT Communities. Classes. Races
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Journal of Economic Literature Classification System: L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification and Scope, Age, Profit, and Sales
Z - Other Special Topics > Z1 - Cultural Economics; Economic Sociology; Economic Anthropology > Z13 - Social Norms and Social Capital; Social Networks
G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 608
Date Deposited: 10 Jul 2009 10:23
URL: http://eprints.lse.ac.uk/24427/

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