CEO-Board Connectedness and Firm Value: Analysis on Corporate Social Responsibility

This paper finds that there is a positive effect of CEO-board connectedness on firm value. A CEO-connected director may increase firm value by providing valuable information about a CEO and monitoring her more efficiently. In addition to the direct relationship between CEO-board connectedness and firm value, this paper analyzes one of possible channels through which connectedness may affect firm value: corporate social responsibility (CSR). It is found that a CEO-connected director may prevent a CEO from seeking her private benefit by participating in CSR from the analyses on simultaneous equation models. This paper further investigates in which circumstances the positive effect of CEO-board connectedness becomes more prevalent than the negative effect. A CEO's bargaining power on board and alternative sources of information may influence the relationship between CEO-board connectedness and firm value.