Corporate Finance Policies and Social Networks
Management Science, 63 (8), 2420-2438
40 Pages Posted: 18 Apr 2008 Last revised: 28 Nov 2017
Date Written: 2017
This paper shows that managers are influenced by their social peers when making corporate policy decisions. Using biographical information about executives and directors of U.S. public companies, we define social ties from current and past employment, education, and other activities. We find that more connections two companies share with each other, more similar their capital investments are. To address endogeneity concerns, we find that companies invest less similarly when an individual connecting them dies. The results extend to other corporate finance policies. Furthermore, central companies in the social network invest in a less idiosyncratic way, and exhibit better economic performance.
Keywords: Corporate Finance Policy Decisions; Social Networks; Capital Investments
JEL Classification: G31, L14
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