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


Brandes, L; Brechot, Marc; Franck, E (2014). Managers’ External Social Ties at Work: Blessing or Curse for the Firm? IBW Working Paper Series 345, University of Zurich.

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.

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.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Language:English
Date:22 May 2014
Deposited On:20 Nov 2014 09:54
Last Modified:05 Apr 2016 18:31
Series Name:IBW Working Paper Series
Related URLs:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2077963
Other Identification Number:merlin-id:10204

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