Management connection and firm performance: Evidence from Global Financial Crisis

This study revisits the relationship between the connection CEOs develop with other top executives through appointment decisions and firm performance during the 2008–2009 financial crisis. Contrary to the conventional wisdom that less CEO-independent management team harms firm performance, I document a positive association between management connection and crisis-period stock returns. This baseline finding is robust to various identification strategies with alternative measures of management connection, alternative samples, and placebo tests. Further analyses reveal that the relationship is more pronounced in firms that face more information uncertainty and complex business structure, as well as those with long-connected management teams and high CEO ownership. The evidence suggests that management connection in creating team homogeneity facilitates faster and more decisive actions, which benefit firm performance amid the financial crisis.