Why do firms allow their CEOs to join trade associations? An embeddedness view

Ju Fang Yen, Yan Shing Chen, Chung Hua Shen, Chih-Yung Lin*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

Abstract

This paper investigates the potential benefits provided by the directorship of CEOs in trade associations. Specifically, we argue that directorship in trade associations enhances the personal connections (social networks) of CEOs, translating into bank loan favors. Empirically, we find that firms with CEOs holding trade association directorships enjoy larger loans, lower rates and longer loan maturities from both privately-owned and government-owned banks. Moreover, firms with CEOs holding directorships in major trade associations enjoy better privileges. These benefits expand during financial crisis. Our results help explain why CEOs prefer holding directorships in trade associations and why well-connected CEOs are paid more.

Original languageEnglish
Pages (from-to)47-61
Number of pages15
JournalInternational Review of Economics and Finance
Volume32
DOIs
StatePublished - 1 Jan 2014

Keywords

  • Bank loan contracts
  • CEO
  • Financial crisis
  • Social networks
  • Trade associations

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