This study reveals that the connectedness between US firms can be both “good” (ownership) and “bad” (boardroom). Network links through ownership increase return on assets by 0.12%, while board networks decrease it by 0.07%. BIG3 institutional investors’ connections yield higher return on assets, particularly among same-industry firms, consistent with a passive peer benchmarking mechanism. Conversely, boardroom connectedness negatively affects performance through an active capacity constraint mechanism, with male directors driving this effect. To establish causality, we implement a fuzzy regression discontinuity design and a full 2SLS framework using the annual Russell 1000/2000 index reconstitution as an instrument for ownership connectedness, and unexpected director deaths identified from SEC EDGAR filings as an instrument for boardroom connectedness. The two instruments are mutually orthogonal in their first-stage effects, confirming that the two channels operate through empirically distinct mechanisms.
Presented at the Owners as Strategists Conference, IGPRC2022 semifinals, FMCG22 Conference, NFI-Oxford Conference on Common Ownership, Experimental IO and Governance, and AFA 2023 PhD poster session
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4260448
(solo authored paper)
Annalisa Tonetto 