Yang is the PhD student in Finance. He holds an MSc in Finance and B.B.A in Finance from China. His research interests include corporate governance, innovation and textual analysis. He currently researches the interplay between CEO and board, and the M&A topics.
I examine the role of shareholder connections in the appointment of new directors. Using common ownership as a proxy of shareholder connections between the director and the dual-holding investors, I find that shareholder connection increases the likelihood of the director candidate being appointed. In particular, firms with governance problems tend to hire directors with shareholder connections. Shareholders regard such director appointments as good news and experience an increase in their stock wealth. In addition, directors with stronger shareholder connections receive more voting support from shareholders. Appointments of directors with shareholder connections lead to improvements in the firm’s corporate governance rather than improvements in operational and financial performance. Directors also benefit from appointments with more external job opportunities and internal compensation increases.Keywords: Director Appointment; Common Ownership; Shareholder Connection; Corporate Governance