ABSTRACT

This study examines the impact of Chief Executive Officer (CEO) network centrality on bond ratings at the firm level. Using multiple dimensions of social connectedness, we find a significant positive relation between CEO network centrality and bond ratings, suggesting that firms with better connected CEOs are more likely to receive high bond ratings. Our results still hold after a battery of additional tests. We also find that firms with better connected CEOs experience lower cost of debt. Overall, our study supports the notion in social science research that well-connected individuals can bring benefits to their firms.

Conclusion

In this paper, we examine the impact of CEO network centrality on bond credit ratings at the firm level. Relying on five network centrality measures that have been used extensively in accounting and finance literature, we find a significant positive relation between CEO network centrality and bond ratings, suggesting that firms with better connected CEOs receive higher bond ratings. We also find that firms with better connected CEOs experience lower cost of debt, measured as bond yields. Our findings are consistent with the notion in social science that well-connected CEOs may lead to positive outcomes and bring benefits to their firms. This study joins the debate on whether having well-connected CEOs is beneficial or detrimental to an organization. Our findings have meaningful implications to different stakeholder groups including shareholders, managers, and academic researchers. For example, our results may encourage managers to become more socially connected in their networks. Additionally, consistent with prior research, we assume that positions in any social network are unequal, creating a hierarchical network or order in social relationships among individuals.