Corporate Finance: 

Board of Directors’ Social Network Structure effects on Firms’ Performances

 

“The whole is greater than the sum of its parts”, stated by Aristotle more than two thousand years ago, is not just a phrase when it comes to structures of firms and corporate finance decisions. Clearly, the highest authority governing a firm, the board of directors, should be subjected to this phrase as well. A board of directors is composed of individuals and their connections. Hence, the board can be satisfies and can be viewed as a network. Therefore, when studying the board of directors – as a whole, we should essentially study the properties and features of this network. In this paper we discuss (1) how and when it can be useful to integrate concepts from sociology into the corporate finance literature, (2) using field data that we have collected and reconstructed from social network to characterize and scores the 500S&P firms, (3) we also study how these characteristics affect firms’ performances as a final objective in this paper. The preliminary results from this study emphasize the positive effect of a well socially-connected board on the performances of the exclusive firm. Our results are consistent with our prior hypothesis and intuition and they can contribute to the growing literature in industrial organizations and corporate finance on influence diffusion within networks.