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Implications of Social Networks on Compensation and Firm Performance
Author(s) -
Horton Joanne,
Millo Yuval,
Serafeim George
Publication year - 2012
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2011.02276.x
Subject(s) - social connectedness , economic rent , compensation (psychology) , construct (python library) , social capital , business , executive compensation , sample (material) , power (physics) , industrial organization , microeconomics , economics , psychology , social psychology , computer science , social science , chemistry , physics , chromatography , quantum mechanics , sociology , programming language
Using a sample of 4,278 listed UK firms, we construct a social network of directorship‐interlocks that comprises 31,495 directors. We use social capital theory and techniques developed in social network analysis to measure a director's connectedness and investigate whether this connectedness is associated with their compensation level and their firms overall performance. We find connectedness is positively associated with compensation and with the firm's future performance. The results do not support the view that executive and outside directors use their connections to extract economic rents. Rather the company compensates these individuals for the resources these better connections provide to the firm.