Strength in Numbers? TMT Social Connections and Resource Adjustment Decisions

Abstract

Social connections among top executives facilitate information sharing and integration, which are essential for resource adjustment decisions. Using education and employment connections among the top management team (TMT) to measure social connections, we find that social connections within TMT are negatively associated with cost stickiness, suggesting that these connections enhance information sharing among top executives and expedite the resource adjustment process. This result is robust to employing the propensity score matching and the entropy balancing methods and adopting a difference-in-differences research design using CEO/CFO death and retirement events as exogenous shocks. We also find that the negative effect of TMT social connections on cost stickiness is more pronounced when the connections involve executives holding information crucial for resource adjustment decisions, and in firms with complex organizational structures and greater economic uncertainty. Furthermore, better information flow from lower-level staff to management teams enhances the effect of TMT social connections on resource adjustment decisions. Additional tests suggest that TMT social connections shorten the length of the resource adjustment process and encourage the reduction of lower-value resources. Improved resource adjustment flexibility has a positive impact on future performance. Overall, this study provides insights into how internal information sharing within TMTs influences resource adjustment decisions and cost management.