Similarity Breeds Trust: Political Homophily and CEO-Board Communication

Similarity Breeds Trust: Political Homophily and CEO-Board Communication

Sudipto Dasgupta, Ran Guo, Xiao Ren, Tao Shu

Series number :

Serial Number: 

Date posted :

December 29 2021

Last revised :

April 11 2023
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  • friendly board • 
  • CEO-board communication • 
  • political homophily • 
  • Crash risk • 
  • Corporate governance

We find evidence suggesting that similarity of political views between the CEO and independent directors (“political homophily”) encourages the CEO to share adverse information with the board. Firms with higher political homophily have lower stock price crash risk, are more likely to divest previously acquired assets with poor announcement returns, and write down loss-making assets.

Furthermore, the effect of political homophily is complemented by strong shareholder governance which prevents friendly board from insulating the CEO in the case of ex post negative outcomes. Our identification utilizes the exogenous variation in political beliefs associated with the entry of a conservative television network in local markets. Our findings show that a friendly board facilitates CEO-board communication which is crucial for the board to function effectively in its advisory role.


Real name:
Ran Guo
Real name:
Xiao Ren
Real name:
Tao Shu