Leaky Director Networks and Innovation Herding

87 Pages Posted: 1 Aug 2022 Last revised: 18 Jan 2024

See all articles by Felipe Cabezon

Felipe Cabezon

Virginia Tech - 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

We first document that, despite potential legal issues, overlapping directors are surprisingly prevalent among direct competitors. Using panel data regressions and plausibly exogenous shocks, we find that competing firms in markets with dense overlapping-director networks experience innovation herding, lose product differentiation, and ultimately perform poorly. Novel text-based network propagation tests of technologies show that intellectual property leakage plays a role as firms with dense overlapping director networks experience faster propagation of technologies to competitors. Our findings suggest a coordination problem where industry participants cannot stop rivals from earning small gains from leakage despite much larger community-wide negative externalities.

Keywords: Director Networks, Leakage, Product-market competition, Innovation

Suggested Citation

Cabezon, Felipe and Hoberg, Gerard, Leaky Director 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 Tech - 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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