earticle

영어

This paper examines the role of CEO-director connections on the value of the firm. Using GMM with a local supply of directors and region-fixed effects as instruments, I conduct empirical analyses on the US firms between 1999 and 2016. The results suggest that there exist both the benefit and the cost of CEO-connected directors. The effect of CEO-connected directors on the firm value is contingent on the firm-specific characteristics. CEO-director connections contribute to the firm by resolving information asymmetry. Thus, it is better to allow CEO-connected directors when other sources of information such as analysts are scarce. On the other hand, such connections exacerbate the agency problem. When the CEO has an incentive to extract a private benefit, the firm value deteriorates by CEO-connected directors. My results suggest that it is necessary to establish the rules on the board of directors by reflecting the firm-specific characteristics such as information transparency.