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Differences make a difference: Diversity in social learning and value creation

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  • Fang, Yiwei
  • Francis, Bill
  • Hasan, Iftekhar

Abstract

Prior research has demonstrated that CEOs learn privileged information from their social connections. Going beyond the importance of the number of social ties in a CEO's social network, this paper studies the value generated from a diverse social environment. We construct an index of social-network heterogeneity (SNH) that captures the extent to which CEOs are connected to people of different demographic attributes and skill sets. We find that higher CEO SNH leads to greater firm value through the channels of better corporate innovation and diversified M&As. Overall, the evidence suggests that CEOs' exposure to human diversity enhances social learning and creates greater growth opportunities for firms.

Suggested Citation

  • Fang, Yiwei & Francis, Bill & Hasan, Iftekhar, 2018. "Differences make a difference: Diversity in social learning and value creation," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 474-491.
    • Handle: RePEc:eee:corfin:v:48:y:2018:i:c:p:474-491
    DOI: 10.1016/j.jcorpfin.2017.11.015
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    More about this item

    Keywords

    Social networks; Human diversity; Firm value;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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