Social Networks and Corporate Governance

Hi All,

I have studied financial journals and found one interesting article about the SN and Corporate Governance in modern world. Here is the abstract:

We analyze frameworks that link corporate governance and firm values to governing boards' social network and innovations in technology. Because agents create social networks with individuals with whom they share commonalities along the dimensions of social status and income, among other attributes. CEOs may participate in board members' social networks which interferes with the quality of governance. At the same time, social connections with members of a board can allow for better evaluation of the members' abilities. Thus, in choosing whether to have board members with social ties to management, one must trade off the benefit of members successfully identifying high ability CEOs against the cost of inadequate monitoring due to social connections. Further, technologies like the Internet and electronic mail that reduce the extent of face-to-face networking cause agents to seek satisfaction of their social nee& at the workplace, which exacerbates the impact of social network on governance. The predictions of our model are consistent with recent episodes that appear to signify inadequate monitoring of corporate disclosures as well as with high levels of executive compensation. Additionally, empirical tests support the model’s key implication that there is better governance and lower executive compensation in firms where networks are less likely to form.

The article can be found in our library in the European Financial Management Magazine, Vol. 14, No. 4, 2008, pp. 633-662. The author is Avanidhar Subrahmanyam.

Good luck.