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

Author

Listed:
  • Leif Brandes

    () (Warwick Business School, University of Warwick)

  • Marc Brechot

    () (Department of Business Administration, University of Zurich)

  • Egon Franck

    () (Department of Business Administration, 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.

Suggested Citation

  • Leif Brandes & Marc Brechot & Egon Franck, 2014. " Managers’ External Social Ties at Work: Blessing or Curse for the Firm?," Working Papers 345, University of Zurich, Department of Business Administration (IBW).
  • Handle: RePEc:zrh:wpaper:345
    as

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    Keywords

    social relationships; social capital; principal-agent relationship; worker allocation; basketball;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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