Director’s network, governance bundles and cash holding in foreign cross listed companies

Abstract

A well-connected director within the boardroom can affect governance positively. As discussed by Larcker, So, and Wang (2013), director’s networks can serve as a channel for good business practices by exchanging valuable information among other directors. It is much easier for a well-connected director to receive important information through their connections that they then allow board to implement in the companies. This common practice is then revealed by many scholars. Bertrand, Kramarz, Schoar, and Thesmar, (2004), finds that directors with large networks receive favourable benefits from government agencies. Hochberg, Ljungqvist, and Lu (2007) show that director’s networks seem to improve value by facilitating information flow in a variety of contexts such as venture capital investment and analysist recommendation (Cohen, Frazzini, and Malloy, 2010). According to Larcker, So, and Wang (2013) companies with well-connected directors demonstrate higher stock returns and superior financial performance. However, little research focus on director’s networks and cash holdings, an essential asset on company’s balance sheet. In this thesis I study in detail the topological structure of director’s network1 that arise from this phenomenon. This thesis examines how governance bundles2 and director’s network relates to cash holdings3 for foreign cross listed companies4. Using a large cross-country sample of 1,477 publicly listed companies from 32 countries during the period of 2004 – 2015, I construct the implicit director’s network with shared directors using their current, and previous employment. Purpose: The purpose of this study is to measure the impact of governance bundles and director’s networks on cash holding decision in foreign cross listed companies. Methodology: Using Social Network Analysis5, I examine whether a pattern of director’s network exist among 1,477 publicly listed companies based on the data from director’s biography collected from Bloomberg. Findings: I find a significant negative relation between governance bundles and directors’ network in relation with companies’ cash holdings. Additionally, I find complementary effect between governance bundles and director’s networks and its impact on cash holdings. These finding are robust to alternative model specifications, different variable measurements and tests for endogeneity. Research Implications: The findings of this study contribute to the academic literature related to cash holdings, governance bundles, director’s network as well as cross listed companies and assist policymakers in understanding the importance of governance bundles and director’s network when deciding companies’ cash holdings for foreign cross listed companies.