Corporate Finance Policies and Social Networks
University of Texas at Austin
April 17, 2014
AFA 2011 Denver Meetings Paper
This paper shows that managers are influenced by their social peers when making corporate policy decisions. Using a matrix of social ties from current and past employment, education, and other activities for US executives and directors, we find that more social connections two companies share with each other, more similar their capital investments are. To address endogeneity concerns, we find that two companies invest less similarly when an individual connecting them dies. The results extend to other corporate finance policies. Furthermore, companies positioned centrally in the social network invest in a less idiosyncratic way, and exhibit better economic performance.
Number of Pages in PDF File: 52
Keywords: Corporate Finance Policy Decisions; Social Networks; Capital Investments.
JEL Classification: G31, L14working papers series
Date posted: April 18, 2008 ; Last revised: April 17, 2014
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