Managers' External Social Ties at Work: Blessing or Curse for the Firm?

41 Pages Posted: 12 Jun 2012 Last revised: 12 Aug 2014

See all articles by Leif Brandes

Leif Brandes

University of Lucerne

Marc Brechot

University of Zurich - Department of Business Administration (IBW)

Egon P. Franck

University of Zurich - Department of Business Administration (IBW)

Date Written: May 22, 2014

Abstract

Existing evidence shows that decision-makers’ social ties to internal co-workers can lead to reduced firm performance. In this paper, we show that decision-makers’ social ties to external transaction partners can also hurt firm performance. Specifically, we use 34 years of data from the National Basketball Association and study the relationship between a team's winning percentage and its use of players that the manager acquired through social ties to former employers in the industry. We find that teams with “tie-hired-players” underperform teams without tie-hired-players by 5 percent. This effect is large enough to change the composition of teams that qualify for the playoffs. Importantly, we show that adverse selection of managers and teams into the use of tie-hiring procedures cannot fully explain this finding. Additional evidence suggests instead that managers deliberately trade-off private, tie-related benefits against team performance.

Keywords: social networks, social capital, principal-agent relationship, worker allocation, basketball

Suggested Citation

Brandes, Leif and Brechot, Marc and Franck, Egon P., Managers' External Social Ties at Work: Blessing or Curse for the Firm? (May 22, 2014). Available at SSRN: https://ssrn.com/abstract=2077963 or http://dx.doi.org/10.2139/ssrn.2077963

Leif Brandes

University of Lucerne ( email )

Lucerne
Switzerland

Marc Brechot (Contact Author)

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland

Egon P. Franck

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich 8032
Switzerland
+41 1 634 28 45 (Phone)

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