62 Pages Posted: 15 Dec 2011 Last revised: 30 Jan 2013
Date Written: January 12, 2013
Using the historical random assignment of MBA students to sections at Harvard Business School, I explore how executive peer networks can affect managerial decision-making and firm policies. Within an HBS class, firm outcomes are significantly more similar among graduates from the same section than among graduates from different sections, with the strongest effects in executive compensation and acquisitions strategy. Both compensation and acquisitions propensities have elasticities of 10-20% with respect to the mean characteristics of section peers. I demonstrate the important role of ongoing social interactions by showing that peer effects are more than twice as strong in the year immediately following staggered alumni reunions. A variety of other tests suggest that peer influence can operate through direct reactions to peer outcomes in ways that do not necessarily contribute to firm productivity.
Keywords: Networks, Peer Effects, Executive Compensation, M&A
JEL Classification: D71, M12, G34
Suggested Citation: Suggested Citation
Shue, Kelly, Executive Networks and Firm Policies: Evidence from the Random Assignment of MBA Peers (January 12, 2013). Chicago Booth Research Paper No. 11-46; Fama-Miller Working Paper . Available at SSRN: https://ssrn.com/abstract=1973031 or http://dx.doi.org/10.2139/ssrn.1973031
By John Heinz