The Impact of Directors’ External Connections on Their Compensation

Abstract

Based on a large sample of directors, I find that directors’ external connections are positively associated with the level of their compensation, suggesting that directors are compensated for the value they bring to the firm through their external connections. This association holds after controlling for the various factors such as firm and CEO characteristics, board related governance characteristics, directors’ attributes such as experience and education, industry and year fixed effects, used in prior studies. I also find that the association between the components of external connections and compensation is different for different types of directors.