The network centrality of influential bankers

A new capital structure determinant

Joao Amaro De Matos, Miguel A. Ferreira, Pedro P. Matos, Joao Mergulhao

Research output: Contribution to journalArticle

Abstract

This paper studies the impact of the presence of bankers in the board of a corporation on its capital structure. We assume that the presence of bankers lowers information asymmetry problems, facilitating information transmission between corporations and financial institutions. Using a large database on Board of Directors, we construct the directors's social network and measure the relative influence (centrality) of bankers on the information transmission mechanism. Our results indicate that for a sample of US firms, the presence of bankers in the board increases the leverage ratio. This effect is magnified by the influence of the banker, i.e. the more connected a banker is, the higher the leverage ratio of the firm in which he or she sits. We also show that he effect of banker's social influence on the leverage ratio increases with firm's opacity, which is consistent with our interpretation of the role of bankers on the information transmission mechanism.
Original languageEnglish
JournalSSRN Electronic Journal
DOIs
Publication statusPublished - Aug 2009

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Keywords

  • Board of Directors
  • Social Networks
  • Capital Structure

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