Do manager networks affect the efficiency of capital markets? Empirical research based on social network theory

Abstract

Managers generally possess complex social networks and occupy central positions within their networks. We investigate the influence of managers’ social network relationships on capital market pricing efficiency by specifically analysing the relationship between top management team network centrality and stock price synchronicity. Using stock price synchronicity as a proxy for information efficiency, we examine data from Chinese A-share listed companies over a period of ten years (2013–2022). Based on the social network perspective, we empirically test the relationship between top management team network centrality and stock price synchronicity. Our results reveal that top management team network centrality promotes stock price synchronicity, which is more significant for non-state-owned enterprises. Mechanism testing indicates that analyst attention plays a partial mediating role between top management team network centrality and stock price synchronicity based on herd behaviour and social network theory. Additionally, institutional investors’ shareholding ratios weaken the impact of top management team network centrality, whereas analyst herding strengthens the promotion of stock price synchronicity. After excluding the endogenous effects these main findings remain robust. Overall, the results support the idea that executive networks promote stock price synchronicity.

Keywords

• Social network
• Stock price synchronicity
• Institutional investors
• Company-specific information