Directors Networks and Innovation Herding

53 Pages Posted: 1 Aug 2022

See all articles by Felipe Cabezon

Felipe Cabezon

Virginia Polytechnic Institute & State University - Pamplin College of Business

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: July 10, 2022

Abstract

This paper examines the role of overlapping director networks on firm innovation, competition, and performance. First, we document that, despite potential legal challenges, overlapping directors are surprisingly most prevalent among direct competitor firm-pairs. Using panel data regressions with rigid controls and plausibly exogenous shocks, we find that competing firms in markets with dense director overlaps engage in innovation herding, experience losses in product differentiation, and ultimately perform poorly. Novel network propagation tests of individual technologies show that intellectual property leakage plays a role as firms with overlapping directors experience faster propagation of technologies to their competitors. Our results are most consistent with an agency conflict that is new to the literature, as directors can realize better career outcomes by leaking sensitive information across boards, even though a consequence can be value destruction for shareholders.

Keywords: Director Networks, Product-market competition, Innovation

Suggested Citation

Cabezon, Felipe and Hoberg, Gerard, Directors Networks and Innovation Herding (July 10, 2022). Available at SSRN: https://ssrn.com/abstract=4158977 or http://dx.doi.org/10.2139/ssrn.4158977

Felipe Cabezon (Contact Author)

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://faculty.marshall.usc.edu/Gerard-Hoberg/

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