Abstract
The education of the French elite within a restricted circle of prestigious schools leads to strong social ties inside the boardroom. This paper examines the impact of those ties on a firm’s cost of equity. Our results show that the strength of CEO-directors ties is associated with a higher cost of equity due to the risk of managerial opportunism induced by weaker board monitoring. This effect is amplified when the CEO is firmly entrenched due a longer tenure or dual role as chairman of the board. It is however moderated when other control mechanisms can substitute for a deficient board, such as the presence of a large controlling shareholder or extensive analysts following. Overall, our results highlight the cost arising from the existence of social networks in the boardroom.