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Asian Review of Financial Research, Vol., No..
pp.329~368
pp.329~368
Congruence within the Top Management: How ¡°Old Boy Network¡± Affects Executive Appointment and Performance
Daemin Ahn Korea University Business School
Woojin Kim Seoul National University Business School
Eun Jung Lee Hanyang University
Kyung Suh Park Korea University Business School
This paper examines the determinants and the consequences of congruence between the CEO and other executives focusing on the role of previously-built school and regional ties. Using a sample of 2,129 firm-years from 2003 to 2006 for all firms listed on the Korea Stock Exchange, we find that executives are more likely to share the same school or regional background as the CEO when the firm is small, foreign ownership is low, or the CEO is a family member of the controlling shareholder. We also find that such congruence increases firm value when the firm is young and foreign ownership is large, but decreases firm value in firms tightly controlled by family member CEOs through large voting rights. These results suggest that congruence within the top management may facilitate communication when the nature of information being transmitted is ¡°soft¡±, but may aggravate agency problems when CEOs are entrenched.
Daemin Ahn
Woojin Kim
Eun Jung Lee
Kyung Suh Park
This paper examines the determinants and the consequences of congruence between the CEO and other executives focusing on the role of previously-built school and regional ties. Using a sample of 2,129 firm-years from 2003 to 2006 for all firms listed on the Korea Stock Exchange, we find that executives are more likely to share the same school or regional background as the CEO when the firm is small, foreign ownership is low, or the CEO is a family member of the controlling shareholder. We also find that such congruence increases firm value when the firm is young and foreign ownership is large, but decreases firm value in firms tightly controlled by family member CEOs through large voting rights. These results suggest that congruence within the top management may facilitate communication when the nature of information being transmitted is ¡°soft¡±, but may aggravate agency problems when CEOs are entrenched.
Social networks,communication,organizational design,congruence,executives,Korea
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