A tiger with wings : CEO–board surname ties and agency costs

Although corporate governance literature recognizes the influence of acquired social ties between CEOs and directors, innate social ties are hardly explored. To extend this literature, this study examines how CEO–board surname ties influence agency costs. Drawing on social identity theory, we first develop the argument that CEO–board surname ties result in increased agency costs. We then employ agency theory to examine the boundary conditions under which such directors are less likely to act as group members of surname ties. Specifically, we consider three key governance tools as such conditions, namely, monitoring by shareholders, aligning directors’ interests with firm value, and aligning supervisors’ interests with firm value. We find empirical support for our arguments by using a sample of 16,926 listed firms and 165,287 directors in China from 2005 to 2015. We discuss the contributions to corporate governance literature and elucidate the practical implications of our findings.