Social Networks and Job Referrals in Recruitment

This paper investigates whether using recommendations for recruitment reduce information asymmetries or allow the exchange of favors in the labor market of board directors. I use data on all directors of large listed US companies between 2004 and 2008. These are linked with extensive information on their social networks and detailed information on the referrals underpinning new independent board appointments. Compared to non-connected new directors, connected directors are 14% more likely to be referred by current board members with whom they share employment history. Predictions of a theoretical model allow me to further discriminate between information provision and favoritism in the use of such referrals for recruitment. Results show that referrals help select directors with higher ability, in particular the type of ability that is partially observed at the time of hiring.