Match!

Executive succession: The importance of social capital in CEO appointments

Published on May 1, 2018in Strategic Management Journal
· DOI :10.1002/smj.2766
Margarethe F. Wiersema24
Estimated H-index: 24
(UCI: University of California, Irvine),
Yoichiro Nishimura1
Estimated H-index: 1
(Kanagawa University),
Katsushi Suzuki2
Estimated H-index: 2
(Hitotsubashi University)
Sources
Abstract
Research Summary: Firm performance and corporate governance have been shown to influence CEO selection, but our understanding of the role of social capital is more limited. In this study, we seek to provide further insight into the role of social capital by examining the influence of both “bonding” and “bridging” forms of social capital on CEO appointments. We find that candidates who have relational social capital, in terms of overlap with the CEO in organizational tenure, board tenure, and CEO tenure are more likely to be appointed as CEO. We also find that candidates who have external linkages to the CEO in the form of geographic, prestigious university, and prior employment affiliations are more likely to be appointed CEO. Managerial Summary: The appointment of a new CEO has significant and widespread implications for the firm’s future strategic direction and performance, the relationship between the board and CEO, and perceptions by investors, employees, and other key stakeholders. Our study finds that candidates who have shared connections and experiences with the CEO in terms of geographic, prestigious university, or prior employment affiliations as well as overlap in terms of organizational tenure, board tenure, and CEO tenure are more likely to be appointed CEO. Given the enormous impact that executive appointments have on the strategic direction and performance of the company, it is important to recognize that social factors such as shared experiences and connections influence how candidates are perceived, and thus, may affect appointment decisions.
  • References (74)
  • Citations (2)
📖 Papers frequently viewed together
7 Citations
2013
2 Authors (David H. Zhu, Wei Shen)
2011
1 Author (Z. Jill Barclift)
2 Citations
78% of Scinapse members use related papers. After signing in, all features are FREE.
References74
Newest
#1John R. Hollenbeck (MSU: Michigan State University)H-Index: 49
#2Bradley B. Jamieson (MSU: Michigan State University)H-Index: 1
Human resource management research has traditionally taken the attribute approach; outcomes are considered to be dependent on attributes of the individuals or attributes of the job itself. However, many of the phenomena and outcomes related to human capital, such as recruiting and onboarding, teamwork and communication, knowledge management, and employee satisfaction are also dependent on social capital and the relational networks that exist among employees. Social network analysis is a methodol...
35 CitationsSource
#1Ying Cao (CUHK: The Chinese University of Hong Kong)H-Index: 5
#2Dan S. Dhaliwal (KU: Korea University)H-Index: 4
Last. Yong George Yang (CUHK: The Chinese University of Hong Kong)H-Index: 7
view all 4 authors...
We study the impact of social networks on the ability of independent directors to obtain private information from their firms' executives. We find that independent directors socially connected to their firms' senior executives earn significantly higher returns than unconnected independent directors in stock sales transactions. The network effect on independent directors' trading profitability is stronger in firms with higher information asymmetry and with more powerful executives. In addition, t...
23 CitationsSource
#1David H. Zhu (ASU: Arizona State University)H-Index: 9
#2James D. Westphal (UM: University of Michigan)H-Index: 38
In recent years, new director appointments have increasingly posed a dilemma for corporate leaders: while CEOs prefer individuals who have similar backgrounds to them, they face increased pressure to appoint new directors who have a different demographic profile. We suggest that CEOs may resolve this dilemma by appointing new directors who have prior experiences working with other demographically similar CEOs. We then explain why this tendency is stronger when new directors are demographically m...
37 CitationsSource
#1Nan Jia (SC: University of Southern California)H-Index: 8
This paper examines the circumstances under which collective and private corporate political actions are more likely to be substitutes or complements. Using data based on a series of nationwide surveys conducted on privately owned firms in China, I find that firms that are engaged in collective political actions are more likely to pursue private political actions. This positive relationship is stronger in less economically developed provinces and when there are greater opportunities for the stat...
79 CitationsSource
This paper provides empirical evidence consistent with the facts that (1) social networks may strongly affect board composition and (2) social networks may be detrimental to corporate governance. Our empirical investigation relies on a unique dataset on executives and outside directors of corporations listed on the Paris stock exchange over the 1992-2003 period. This data source is a matched employer employee dataset providing both detailed information on directors/CEOs and information on the fi...
116 CitationsSource
#1Martin BellH-Index: 25
10 Citations
#1Yiwei Fang (IIT: Illinois Institute of Technology)H-Index: 9
#2Bill B. Francis (RPI: Rensselaer Polytechnic Institute)H-Index: 22
Last. Iftekhar Hasan (Bank of Finland)H-Index: 47
view all 3 authors...
This paper examines through various channels the effects of CEO social network heterogeneity on firm value. We construct four measures of heterogeneity based on demographic attributes, intellectual backgrounds, professional experience, and geographical exposures of individuals in the CEO social network. We find that CEO social network heterogeneity leads to higher Tobin's Q of firms. Greater CEO social network heterogeneity also leads to: (i) more innovation, (ii) more foreign sales growth, (iii...
9 CitationsSource
#1Bang Dang Nguyen (University of Cambridge)H-Index: 8
This paper investigates the impact of social ties on the effectiveness of boards of directors. When the chief executive officer (CEO) and a number of directors belong to the same social networks, the CEO is less likely to be dismissed for poor performance. The results are robust to different measures of performance and networks, and consistent after controlling for CEO ability and connected boards' superior information. Although being ousted is costly for all CEOs---who must then devote time to ...
89 CitationsSource
#1Cesare Fracassi (University of Texas at Austin)H-Index: 7
#2Geoffrey A. Tate (UCLA: University of California, Los Angeles)H-Index: 14
We use panel data on S&P 1500 companies to identify external network connections between directors and CEOs. We find that firms with more powerful CEOs are more likely to appoint directors with ties to the CEO. Using changes in board composition due to director death and retirement for identification, we find that CEO-director ties reduce firm value, particularly in the absence of other governance mechanisms to substitute for board oversight. Moreover, firms with more CEO-director ties engage in...
321 CitationsSource
#1Jie Jenny Tian (PolyU: Hong Kong Polytechnic University)H-Index: 1
#2Jerayr Haleblian (UGA: University of Georgia)H-Index: 17
Last. Nandini Rajagopalan (SC: University of Southern California)H-Index: 24
view all 3 authors...
This study extends work on independent directors to examine the influence of their human capital and social capital on investor reactions to the board's CEO selection decision. We predict that human capital, as represented by the board's CEO experience and industry experience, and social capital, as represented by directors' co-working experience on the board and external directorship ties to other corporate boards, will influence the stock market reactions to new CEO appointments. In a sample o...
113 CitationsSource
Cited By2
Newest
Abstract Acquisitions are an important exit strategy for technology entrepreneurs and investors, but what can technology ventures do to increase their chances of achieving an acquisition? We draw on signaling theory to examine the role that market orientation plays behind acquisitions. We test our hypotheses in a sample of young biotechnology ventures, and our findings are three-fold. First, we show that a target's market orientation is an important direct driver of acquisitions, thus incorporat...
Source
#1Bassam Farah (AUB: American University of Beirut)H-Index: 1
#2Rida Elias (AUB: American University of Beirut)H-Index: 1
Last. Glenn Rowe (UWO: University of Western Ontario)
view all 4 authors...
Abstract We systematically review the recent impactful leadership succession literature in three types of organizations/contexts, namely publicly-traded, privately-owned (mostly family businesses), and political organizations. We compare and contrast these literatures, and argue that business and political leadership succession researchers and practitioners can learn from each other. The purpose of the review is fourfold. First, to take stock of the existing leadership succession research in the...
Source
While researchers from many disciplines are increasingly interested in studying issues related to sustainability, few studies have presented a holistic view of sustainability from the perspectives of business and management. This bibliometric study quantitatively analyzed a big data set of 30 years of sustainability research (1990–2019), consisting of 37,322 publications and 1,199,398 cited references, visualizing major topics, dynamic evolution, and emerging development. The decade-by-decade in...
Source