This work aims at analysing how board’s relation capital (i.e. network ties to other firms) affects the two fundamental functions of the board of directors: to monitor the actions of top management and to provide it useful advice. We review the relevant literature on agency theory, resource-dependence theory and social network analysis applied to boardroom network, and find that a unique, comprehensive perspective on how board capital influences monitoring and advising roles is missing. As regards advising, there is wide consensus that directors who are well-connected in the boardroom network can offer high quality advising services to the firm and therefore enhance firm value. By contrast, such directors could not intensively monitor senior management since either they already have a good reputation (revised reputation hypothesis), or because they are overcommitted and lack time to prepare for or participate in board meetings (busyness hypothesis). Therefore, we hypothesize that boards with higher relation capital monitor less (granting the CEO a higher overall compensation), but eventually positively impact firm value by providing higher-quality advising. By measuring board relation capital through centrality measures specific of social network analysis, we test our hypothesis on a panel of 249 Italian firms listed in Milan stock exchange during the period 2010-2017. We find that boards with higher centrality award their CEOs higher total compensations but, contrarily to our expectations, the value of their firms is actually lower. Our findings may indicate that, consistently with the busyness hypothesis, even though directors who are more central in the network have access to salient strategic information, best management practises and shared contacts, the negative impact on firm value arising from their lack of monitoring may be greater than the positive impact arising from higher-quality advising.
Lo scopo di questo elaborato è quello di analizzare l’impatto del relation capital dei consigli d’amministrazione (i.e. connessioni con altri CdA) sulle due funzioni principali dei consigli stessi: controllare le azioni del top management (monitoring) e consigliare lo stesso sulle varie tematiche aziendali (advising). Analizzando la letteratura rilevante riguardante l’agency theory, la resource-dependence theory e la social network analysis applicata ai network di direttori, notiamo la mancanza di una visione unica e complessiva su come le relazioni sociali tra direttori influenzino i ruoli di monitoring e advising. Riguardo l’advising, la letteratura esistente suggerisce che direttori meglio connessi nella rete dei CdA potrebbero fornire advising di miglior qualità all’azienda. Al contrario, i direttori meglio connessi potrebbero non essere in grado di controllare intensamente il top management per due ragioni: potrebbero essere poco motivati, godendo già di ottima reputazione (revised reputation hypothesis), o potrebbero avere troppi ruoli e perciò non avere il tempo necessario per svolgere al meglio le loro funzioni (busyness hypothesis). Di conseguenza, ipotizziamo che i consigli di amministrazione con relation capital maggiore controllino il top management meno intensamente (permettendo al CEO di ricevere una più alta remunerazione), ma che siano in grado di fornire advising di miglior qualità all’azienda, aumentandone il valore. Misurando il relation capital dei CdA attraverso le misure di centralità proprie della social network analysis, testiamo le nostre ipotesi su un panel di 249 aziende italiane, quotate alla borsa di Milano durante il periodo 2010-2017. I risultati mostrano che CdA più centrali permettono ai CEO di ricevere più alte remunerazioni ma, contrariamente a quanto ipotizzato, il valore della loro azienda è minore. Ciò suggerisce che, in accordo con la busyness hypothesis, nonostante i direttori più centrali abbiano accesso a informazioni strategiche, miglior pratiche e un più alto numero di contatti, l’impatto negativo sul valore aziendale della loro mancanza di controllo potrebbe essere maggiore dell’impatto positivo del loro miglior advising.
Directors' relation capital and board functions' effectiveness : an empirical investigation of Italian listed companies through social network analysis
MINICUCCI, GIOELE;LENI, RICCARDO
2017/2018
Abstract
This work aims at analysing how board’s relation capital (i.e. network ties to other firms) affects the two fundamental functions of the board of directors: to monitor the actions of top management and to provide it useful advice. We review the relevant literature on agency theory, resource-dependence theory and social network analysis applied to boardroom network, and find that a unique, comprehensive perspective on how board capital influences monitoring and advising roles is missing. As regards advising, there is wide consensus that directors who are well-connected in the boardroom network can offer high quality advising services to the firm and therefore enhance firm value. By contrast, such directors could not intensively monitor senior management since either they already have a good reputation (revised reputation hypothesis), or because they are overcommitted and lack time to prepare for or participate in board meetings (busyness hypothesis). Therefore, we hypothesize that boards with higher relation capital monitor less (granting the CEO a higher overall compensation), but eventually positively impact firm value by providing higher-quality advising. By measuring board relation capital through centrality measures specific of social network analysis, we test our hypothesis on a panel of 249 Italian firms listed in Milan stock exchange during the period 2010-2017. We find that boards with higher centrality award their CEOs higher total compensations but, contrarily to our expectations, the value of their firms is actually lower. Our findings may indicate that, consistently with the busyness hypothesis, even though directors who are more central in the network have access to salient strategic information, best management practises and shared contacts, the negative impact on firm value arising from their lack of monitoring may be greater than the positive impact arising from higher-quality advising.| File | Dimensione | Formato | |
|---|---|---|---|
|
Leni_Minicucci_Thesis.pdf
non accessibile
Descrizione: Testo della tesi
Dimensione
5.87 MB
Formato
Adobe PDF
|
5.87 MB | Adobe PDF | Visualizza/Apri |
I documenti in POLITesi sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
https://hdl.handle.net/10589/144533