Boardroom Centrality and Firm Performance: Evidence from Private Firms

We study the link between boardroom centrality and operating performance in private firms. We argue that the centrality-performance relationship is stronger for private firms whose increased connectedness is likely to provide certification benefits, decrease transaction costs by reducing information asymmetry, and improve access to critical resources. Using a sample of Finnish and Swedish private firms, we find that private firms with more central boards have be!er perfor- mance, growth, and efficiency than private firms with less central boards. Moreover, in a sample of private and public firms, we find that private firms with greater eigenvector centrality outper- form size-matched public firms. Subsample analyses further show that networks are crucial for young firms. This is consistent with the view that be!er-connected directors provide firms with informational resources when they need them the most. Overall, our findings show that board- room interlocks are positively associated with immediate economic benefits to private firms.