Date of Award

Spring 3-11-2019

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance

First Advisor

Dr. Omesh Kini (Co-chair)

Second Advisor

Dr. Ajay Subramanian (Co-chair & External - Department of Risk Management and Insurance)

Third Advisor

Dr. Vikas Agarwal

Fourth Advisor

Dr. Lixin Huang

Fifth Advisor

Dr. Scott Murray

Abstract

Board interlocks are pervasive: 68.20% of firms on average from 1991-2011 have at least one interlock. Since a firm's decisions are partly based on the board's information set, interlocked firms may show synchronized movements in their outputs. At the aggregate level, the structure of the board network will determine the information allocation across firms, which will have non-trivial effects on output in the economy. In this study, I theoretically examine the asset-pricing implications of firms’ connections across sectors through the board network. I show that changes in the network structure affects aggregate output, and thereby, consumption. Specifically, two attributes of network topology matter for asset prices - diversity and sparsity. In particular, I derive them from a production-based asset-pricing model in which firms act based on their information set, which is determined by the topology of board network. I then empirically compute the two factors using board network data. Consistent with the model's predictions, I find return spreads of -0.8582% and 0.9024% per month on diversity and sparsity beta-sorted portfolios, respectively.

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