Whom do I know? Executive network centrality and corporate reporting

I investigate the informational role of top executive social networks by examining the association between top executive network centrality and corporate reporting choices. More centrally positioned executives might derive power from being well connected and thus be less concerned about the ex post penalties from the managerial labor market upon the revelation of financial misreporting. Using social network centrality measures constructed on executive biographic information, I find that chief executive officers (CEOs) and chief financial officers (CFOs) that are more centrally positioned in a network are generally more likely to engage in financial misreporting than other CEOs and CFOs. The results also reveal that the influence of CFO network centrality dominates that of CEOs in financial misreporting. Additional tests show that standard corporate governance can - at best - partially mitigate the financial misreporting associated with well-connected executives. I also examine CEO and CFO labor market consequences as a channel that links executive network centrality and the related corporate reporting. I find that well-connected CFOs are more likely to leave their current firms when financial misreporting is revealed and that their subsequent reemployment rate is higher than their less-connected peers. My findings suggest that there could be circumstances under which CFOs are more related to corporate misreporting than CEOs. This finding should be of interest to board members, shareholders, and regulators.