The Spillover Effect Of Director Interlock

The board plays an important part in reducing agency conflicts between managers and shareholders. Although the difference of institutional backgrounds, but director interlock is widespread in companies, director interlock also has been widespread concern in the community. On one hand, although the literature of director interlocks on corporate governance has not been consistent, but the association between the inward and outward spillovers effect has been recognized by the scholars. This paper investigated the effect of director interlock from the perspective of external information users. Based on the concept definition and literature review, this paper establishes influence mechanism of director interlock impact on the outside information user, and then, firstly, from the perspective of inward spillovers and outward spillover empirical research director ties on analyst forecast behavior, secondly, by using event study method, empirical test the time point spillover effect on stock price from the perspective of director interlock formation, break and firm are punished, finally, the time interval spillover effect of director connection by examining the relationship between director interlock and stock price return co-movement.The empirical results show that:(a) the director interlock has a significant impact on analyst’earning forecast behavior. The spilling over effect of director interlock reduces the disagreement among analysts, but the reduction of disagreement increase the forecast error made by analysts. (Two) there is time point spilling over effect of directors interlock. The formation of director interlock (nomination form more seats), special events (the company are punished) and director interlock break (multi seat director’s departure) have significant negative spillover effect, indicating that the company’s social ties affect the investment decisions of investors, a specific behavior of the target corporate will be signal to other corporate by director interlock and have a significant impact on its stock price. But further regression analysis shown that, multi seat board characteristics and CAR does not exist significant correlation. (Three) the director interlock has a significant time interval spillover effect. The empirical test the relationship between board connection and price co-movement is significant positive, the number of director interlock between companies and their the stock return coefficient is significant positive, this interval effect is mainly due to the resources value of director interlock rather than investors’ category invest mode; (Four) the spillover effect of director interlock is different under different time condition. The social attribute of director interlock has an effect on stock price under time point spillover effect; while in the period of spillover effect, resource value of interlock instead of society attribute plays an important part. Therefore, at a certain time point of investment decision, whether there is some connection is taken into account, while in a certain period of time interval, it will consider more about the associated resource value.(Five) the difference between the spillover effect of directors interlock under different social background. The conclusion is controversial in American securities market where single governance mechanism is required. But in China where dual governance mechanism is required, the study shown that multiple seats board nomination and resignation have significant negative impact on the stock price, the negative impact is not due to differences in agency cost. Under multiple seats nomination of directors, investors pay more attention to its limited resources (time and energy) effect on the board governance efficiency, so the nomination announcement effect support busy hypothesis. Under resignation, the attention of investor is transferred to signal of corporate financial risk information rather than their time and energy, so multiple seats director’s resignation has shown the negative spillover effects.The conclusions will help to deepen the study on the effect of stock prices, but also from the perspective of social network has enriched the study on influence factors of analysts’ behavior; on the other hand, the conclusions is beneficial to corporation investor as well as regulators.