NETWORKS AS PIPES AND PRISMS OF THE CEO: EFFECTS OF INDIVIDUAL NETWORKS OF NEWLY APPOINTED CEOs ON FIRM PERFORMANSE

While much of academic literature expresses scepticism about managers’ direct influence on performance of their firms, recent literature suggests that visible, celebrated and well-connected chief executive officers (CEOs) may even be stimulated to hurt their companies. To address these claims, the study examined the relationship between the individual networks of newly appointed CEOs of large corporation and the subsequent performance of these firms. Building on the conception of networks as pipes and prisms and the idea that networks of organizational members may have organizational consequences, the performance implication of two dimensions of individual networks of incoming CEOs: density of ties to board members of public and private companies, and CEO prominence are addressed. The study found that network density is inconsequential for performance, while CEO prominence has negative effect on firm’s stock market performance. In addition, the findings showed that large individual networks may be a mixed blessing: they are associated with positive operating performance of firms, yet contribute to a discount of the firm’s stock price if the incoming CEO built them predominantly through membership on corporate boards.