Outside directors’ social capital and firm performance: A complex network approach

In this paper we investigated whether or not the social capital of outside directors has an impact on firm financial performance and value, using a sample of 480 outside directors from 125 large Korean public trading companies. In order to measure social capital of outside directors, we mapped out their social networks on the basis of their personal affiliation in terms of educational and career background, and applied 2 commonly used complex network analysis measures; betweenness centrality and closeness centrality. A review of the existing literature led us to propose 2 competing hypotheses: first, that there would be a positive relationship between social capital of outside directors on boards and firm performance and second that the relationship would exist, but in a negative direction. The results of our empirical examination revealed a negative impact of outside directors’ social capital on firm performance and value.