Resources or Power?
Implications of Social Networks on Compensation and Firm Performance

Authors

  • Joanne Horton,

    1. The authors are respectively from University of Exeter Business School; London School of Economics; and Harvard Business School. They are grateful to Vasiliki Athanasakou, Daniel Ferreira, Fabrizio Ferri, Maria Loumioti, Yao Lu, Mark Mizruchi, Peter Pope, Andy Stark and seminar participants at University of Haifa, University of Michigan, University of Essex, the Corporate Governance symposium of European Financial Management Association and the JBFA Capital Markets Conference for their insightful comments. The authors appreciate the valuable comments provided by Martin Walker (editor) and an anonymous referee. The authors are solely responsible for any errors.
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  • Yuval Millo,

    1. The authors are respectively from University of Exeter Business School; London School of Economics; and Harvard Business School. They are grateful to Vasiliki Athanasakou, Daniel Ferreira, Fabrizio Ferri, Maria Loumioti, Yao Lu, Mark Mizruchi, Peter Pope, Andy Stark and seminar participants at University of Haifa, University of Michigan, University of Essex, the Corporate Governance symposium of European Financial Management Association and the JBFA Capital Markets Conference for their insightful comments. The authors appreciate the valuable comments provided by Martin Walker (editor) and an anonymous referee. The authors are solely responsible for any errors.
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  • George Serafeim

    Corresponding author
    1. The authors are respectively from University of Exeter Business School; London School of Economics; and Harvard Business School. They are grateful to Vasiliki Athanasakou, Daniel Ferreira, Fabrizio Ferri, Maria Loumioti, Yao Lu, Mark Mizruchi, Peter Pope, Andy Stark and seminar participants at University of Haifa, University of Michigan, University of Essex, the Corporate Governance symposium of European Financial Management Association and the JBFA Capital Markets Conference for their insightful comments. The authors appreciate the valuable comments provided by Martin Walker (editor) and an anonymous referee. The authors are solely responsible for any errors.
    Search for more papers by this author

Joanne Horton, University of Exeter Business School, Streathem Court, Rennes Drive, Exeter EX4 4PU, UK. e-mail: j.horton@exeter.ac.uk

Abstract

Abstract:  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.

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