Board-CEO friendship ties and firm value: evidence from US firms

Yaoyao Fan; Agyenim Boateng; Timothy King; Claire MacRae

doi:10.1016/j.irfa.2019.101373

Board-CEO friendship ties and firm value: evidence from US firms

Yaoyao Fan, Agyenim Boateng^*, Timothy King, Claire MacRae

^*Corresponding author for this work

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24 Citations (Scopus)

Abstract

This study examines the impact of board-CEO friendship ties on firm value and explores potential channels through which changes in firm value may be conveyed, based on a sample of 1696 publicly listed firms in U.S. over the period of 2000–2014. The study reveals that board-CEO friendship ties have a negative and economically meaningful impact on firm value, as measured by Tobin's Q and Total Q. Regarding potential channels of firm value, we show that the negative influence of board-CEO friendship ties on firm value is reduced in firms with greater board advising requirements but intensified in firms with higher board monitoring needs. We also find social ties tend to destroy firm value whereas professional ties do not. Our results are robust to endogeneity concerns, and after controlling for board-CEO professional ties.

Original language	English
Article number	101373
Journal	International Review of Financial Analysis
Volume	65
Early online date	9 Jul 2019
DOIs	https://doi.org/10.1016/j.irfa.2019.101373
Publication status	Published - Oct 2019

Keywords

board-CEO friendship ties
firm value
Directors
Agency theory

ASJC Scopus subject areas

Economics and Econometrics
Finance

Documents and Links

10.1016/j.irfa.2019.101373

Cite this

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title = "Board-CEO friendship ties and firm value: evidence from US firms",

abstract = "This study examines the impact of board-CEO friendship ties on firm value and explores potential channels through which changes in firm value may be conveyed, based on a sample of 1696 publicly listed firms in U.S. over the period of 2000–2014. The study reveals that board-CEO friendship ties have a negative and economically meaningful impact on firm value, as measured by Tobin's Q and Total Q. Regarding potential channels of firm value, we show that the negative influence of board-CEO friendship ties on firm value is reduced in firms with greater board advising requirements but intensified in firms with higher board monitoring needs. We also find social ties tend to destroy firm value whereas professional ties do not. Our results are robust to endogeneity concerns, and after controlling for board-CEO professional ties.",

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AU - Fan, Yaoyao

AU - Boateng, Agyenim

AU - King, Timothy

AU - MacRae, Claire

N1 - Acceptance from webpage AAM requested 23/8/19 ET and 13/9/19 ET Applied no exception as no file available. ET 14/11/19 ^Checked again in case copy now available in other repository > AAM in U of Kent repository but under embargo until July 2021. ET 7/1/21

PY - 2019/10

Y1 - 2019/10

N2 - This study examines the impact of board-CEO friendship ties on firm value and explores potential channels through which changes in firm value may be conveyed, based on a sample of 1696 publicly listed firms in U.S. over the period of 2000–2014. The study reveals that board-CEO friendship ties have a negative and economically meaningful impact on firm value, as measured by Tobin's Q and Total Q. Regarding potential channels of firm value, we show that the negative influence of board-CEO friendship ties on firm value is reduced in firms with greater board advising requirements but intensified in firms with higher board monitoring needs. We also find social ties tend to destroy firm value whereas professional ties do not. Our results are robust to endogeneity concerns, and after controlling for board-CEO professional ties.

AB - This study examines the impact of board-CEO friendship ties on firm value and explores potential channels through which changes in firm value may be conveyed, based on a sample of 1696 publicly listed firms in U.S. over the period of 2000–2014. The study reveals that board-CEO friendship ties have a negative and economically meaningful impact on firm value, as measured by Tobin's Q and Total Q. Regarding potential channels of firm value, we show that the negative influence of board-CEO friendship ties on firm value is reduced in firms with greater board advising requirements but intensified in firms with higher board monitoring needs. We also find social ties tend to destroy firm value whereas professional ties do not. Our results are robust to endogeneity concerns, and after controlling for board-CEO professional ties.

KW - board-CEO friendship ties

KW - firm value

KW - Directors

KW - Agency theory

U2 - 10.1016/j.irfa.2019.101373

DO - 10.1016/j.irfa.2019.101373

M3 - Article

SN - 1057-5219

VL - 65

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

M1 - 101373

ER -

Board-CEO friendship ties and firm value: evidence from US firms

Abstract

Keywords

ASJC Scopus subject areas

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