Boardroom Centrality and Systematic Risk of Firms

We find that boardroom centrality increases the market beta of firms. The higher stock returns of firms with high boardroom centrality diminish and turn statistically insignificant after controlling for market betas. The effect can be attributed to a comovement in accounting fundamentals and financial policies. Overall, these findings highlight the fact that the social networks of corporate leaders (i.e., directors of corporate boards) can have a substantial effect on firms’ systematic risk exposure.

This paper was accepted by Suraj Srinivasan, accounting.

Funding: This work was supported by the National Natural Science Foundation of China [Grants 72272168, 72472169], the Major Project of Key Research Bases of Humanities and Social Sciences of the Ministry of Education [Grant 22JJD790047], the Beijing Natural Science Foundation [Grant 9232020], the Special Project of Humanities in Tsinghua University’s Independent Research Program [2021THZWYY09], the 2024 Special Project for Innovation Oriented Development in the “Double High” Plan of Humanities Construction, and the “Influence Enhancement Plan” project at the School of Economics and Management of Tsinghua University [Grant 2022051006]. The authors also thank China’s Management Accounting Research & Development Center in Central University of Finance and Economics for financial support.

Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2020.01240.