Against the backdrop of global capital market integration and the advancement of information technology, the phenomenon of interlocking directorates has become increasingly prevalent. The functions of resource sharing and information transmission within board networks have thus become a focal point for both academia and practitioners. Supported by the National Natural Science Foundation of China, Professor Lu Yao from the Department of Finance at Tsinghua University's School of Economics and Management, along with Professor Chen Yunsen and Associate Professor Zheng Dengjin from the School of Accountancy at the Central University of Finance and Economics, have recently made significant progress in the study of board networks. Their paper, "Boardroom Centrality and Systematic Risk of Firms," was published in the August 2025 issue of Management Science.

This research provides important theoretical and methodological contributions to the study of board social networks. First, it broadens the research perspective on board networks by extending their impact from firm performance and resource advantages to the domain of systematic risk. Second, it offers empirical evidence of the potential "side effects" of high board centrality, demonstrating that it can amplify systematic risk by increasing fundamental co-movement. Third, through a decomposition of return sources, it highlights the dominant role of the risk premium in explaining high returns associated with centrality. Fourth, by extending the analysis from the banking industry to non-financial sectors, it enriches the understanding of the effects of board networks in diverse contexts. Fifth, methodologically, the study constructs a comprehensive centrality measure, controls for scale effects, and introduces a measure for fundamental co-movement in mechanism testing, thereby providing a relatively thorough analytical framework.

# Article Introduction #

Title：

Boardroom Centrality and Systematic Risk of Firms

Author：

Yunsen Chen, Yao Lu , Dengjin Zheng

Abstract：

We find that boardroom centrality increases the market beta of firms. The higher stock returns of firms with high boardroom centrality diminish and turn statistically insignificant after controlling for market betas. The effect can be attributed to a comovement in accounting fundamentals and financial policies. Overall, these findings highlight the fact that the social networks of corporate leaders (i.e., directors of corporate boards) can have a substantial effect on firms’ systematic risk exposure.