Does Surname Relationship Between CEOs and Directors Affect Agency Cost?

Abstract

Abstract:

In this paper, we analyze the relation between surname relationship of CEOs and directors and agency cost. We find that the above surname relationship is positively and significantly related to agency cost. Our main findings are robust to a battery of robustness tests. The positive effect is more pronounced when (1) firms are non-state-owned enterprises, (2) CEOs and directors share rare surnames, (3) firms located in the district with strong sense of surname or with a weak legal environment or with net population inflow. In addition, it also suggests that surname relationship increases agency cost by reducing board independence and increasing the severity of information asymmetry. Collectively, we contribute to the understanding of surname-based social affinity by providing the first piece of evidence on the effect of surname sharing on agency cost.

Key words: relationship culture, trust, communication cost, agency cost

Yan Weichen, Xiao Xing. Does Surname Relationship Between CEOs and Directors Affect Agency Cost?[J]. , 2019, 31(4): 99-116.

References

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