Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcasts
  • About Us
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Cold Call Podcast
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    • COVID-19 Business Impact Center
      COVID-19 Business Impact Center
      Boardroom Centrality and Firm Performance
      31 Jan 2013Working Paper Summaries

      Boardroom Centrality and Firm Performance

      by David F. Larcker, Eric C. So and Charles C.Y. Wang
      Economists and sociologists have long studied the influence of social networks on labor markets, political outcomes, and information diffusion. These networks serve as a conduit for interpersonal and inter-organizational support, influence, and information flow. This paper studies the boardroom network formed by shared directorates and examines the implications of having well-connected boards, finding that firms with the best-connected boards on average earn substantially higher future excess returns and other advantages. Key concepts include:
      • Board of director networks provide economic benefits that are not immediately reflected in stock prices.
      • Firms with better-connected boards experience significantly higher future excess returns and gains in profitability compared to those with less-connected boards.
      • There is a statistically significant and positive relation between board connectedness and the extent to which the firm's realized earnings exceed the consensus analyst forecast.
      • Network effects appear to be important not only in specific settings or decisions, but they have a more general impact on the economic performance of firms, particularly resource-needy firms.
      LinkedIn
      Email

      Author Abstract

      Firms with well-connected ("central") boards of directors earn superior risk-adjusted stock returns. Initiating a long (short) position in the most (least) central firms earns an average risk-adjusted return of 4.68 percent per year. Firms with central boards also experience higher future growth in return-on-assets (ROA) with analysts failing to fully reflect this information in their earnings forecasts. Return prediction, growth in ROA, and analyst forecast errors are concentrated among firms with high growth opportunities or firms confronting adverse circumstances, consistent with boardroom connections mattering most for firms that stand to benefit most from the information communicated and resources exchanged through the network of board members. Overall, our results suggest that board of director networks provide economic benefits that are not immediately reflected in stock prices.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: August 2012
      • HBS Working Paper Number: Rock Center for Corporate Governance at Stanford University Working Paper, No. 84
      • Faculty Unit(s): Finance
        Trending
          • 24 Feb 2021
          • Lessons from the Classroom

          What History's Biggest Wars Teach Us About Leading in Peace

          • 25 Feb 2019
          • Research & Ideas

          How Gender Stereotypes Kill a Woman’s Self-Confidence

          • 17 May 2017
          • Research & Ideas

          Minorities Who 'Whiten' Job Resumes Get More Interviews

          • 13 Jul 2020
          • Research & Ideas

          Merck CEO Ken Frazier Discusses a COVID Cure, Racism, and Why Leaders Need to Walk the Talk

          • 17 Aug 2020
          • Research & Ideas

          What the Stockdale Paradox Tells Us About Crisis Leadership

      Charles C.Y. Wang
      Charles C.Y. Wang
      Glenn and Mary Jane Creamer Associate Professor of Business Administration
      Contact
      Send an email
      → More Articles
      Find Related Articles
      • Economics
      • Finance
      • Governance

      Sign up for our weekly newsletter

      Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
      ǁ
      Campus Map
      Harvard Business School Working Knowledge
      Baker Library | Bloomberg Center
      Soldiers Field
      Boston, MA 02163
      Email: Editor-in-Chief
      →Map & Directions
      →More Contact Information
      • Make a Gift
      • Site Map
      • Jobs
      • Harvard University
      • Trademarks
      • Policies
      • Digital Accessibility
      Copyright © President & Fellows of Harvard College