JOB MARKET PAPER This paper identifies the effect of corporate networks on firms ’ financial investment and executive pay decisions. Corporate networks arise through board interlocks, which provide a frequent and important channel for non-market interactions amongst firms. Using panel data for all publicly traded companies in India I estimate peer effects in firm policies, defining each firm’s reference group as the set of all other firms with whom it shares one or more directors. Identification of dynamic network peer effects, which derive from endogenous associations, is achieved by exploiting natural breaks in network evolution that exogenously change the composition of peers. These breaks occur as a result of local network shocks – death or retirement of shared directors – that are stochastic and external to the network formation process. I find significant network peer effects that are positively associated with firms ’ investment strategy and executive compensation. I also explore heterogeneity in peer effects by distinguishing between network peers who belong to the same industry from those that do not, and find a greater effect of across-industry network peers.

This paper studies the impact of the presence of bankers in the board of a corporation on its capital structure. We assume that the presence of bankers reduces information asymmetry problems, facilitating information transmission between corporations and financial institutions. Using a large database on Board of Directors, we construct the directors’s social network and measure the relative influence (centrality) of bankers on the information transmission mechanism. Our results indicate that the presence of bankers in the board increases the leverage ratio in US. This effect is magnified by the influence of the banker, i.e. the more connected a banker is, the higher the leverage ratio of the firm in which he or she sits. We also show that he effect of banker’s social influence on the leverage ratio increases with firm’s opacity, which is consistent with our interpretation of the role of bankers on the information transmission mechanism.

and seminar participants at the University of Miami for helpful discussions and valuable comments. We thank Yaniv Grinstein for the option backdating data and Frank Yu for the earnings management data. We are responsible for all remaining errors and omissions. Distance Matters! Shareholder Proximity and Corporate Policies Abstract – This paper investigates whether proximity to institutional shareholders influences corporate policies. We find that firms with high local institutional ownership are more profitable, less risky, and have a better governance structure. Specifically, these firms are less likely to engage in undesirable corporate activities such as aggressive earnings management or option back-dating and are therefore less likely to be a target of class action lawsuits. Further, firms with more local institutional shareholders are less likely to be a takeover target. We also find that both total and option-based executive compensation levels are lower for firms with more local institutional shareholders. In contrast, high local retail ownership does not have significant influence on corporate policies. Taken together, these results are consistent with our conjecture that local institutions serve as more effective monitors of corporate behavior because monitoring costs vary inversely with distance. 1.

Using the historical random assignment of MBA students to sections at Harvard Business School, I show that executive peer networks are important determinants of managerial decisionmaking and firm policies. Within a class, executive compensation and acquisitions strategy are significantly more similar among graduates from the same section than graduates from different sections. Both executive compensation and acquisitions propensities have elasticities of 10-20% with respect to the mean characteristics of section peers. I demonstrate the important role of ongoing social interactions by showing that peer effects are more than twice as strong in the year immediately following staggered alumni reunions. I further show that peer effects in compensation are not driven by similarities in underlying managerial productivity using a test of "pay for friend’s luck": pay responds to lucky industry-level shocks to the compensation of peers in distant industries. Finally, I show that social interactions increased the between-section variance in outcomes by 20-40%, demonstrating that peer effects can significantly contribute to the large variation in outcomes across peer groups.

This paper investigates the impact of social-network connections to politicians on firm value. We focus on the networks of university classmates and alumni among directors of U.S. public firms and congressmen. Using the Regression Discontinuity Design based on close elections from 2000 to 2008, we identify that a director’s connection to an elected congressman causes a Weighted Average Treatment Effect on Cumulative Abnormal Returns of-2.65% surrounding the election date. The effect is robust and consistent through various specifications, parametric and nonparametric, with different outcome measures and social network definitions, and across many subsamples. We find evidence to support the hypothesis that firms benefit more when connected politicians remain in state politics than when they move to federal office. Overall, our study

Using the network of university classmates among corporate directors and politicians and the regression discontinuity design of close gubernatorial elections from 1999 to 2010, we identify the positive and significant impact of social-network based political connections on firm value. Firms connected to elected governors increase value by 1.36 % on average surrounding the election date. Political connections are more valuable in a state with a higher level of regulation and corruption, in smaller firms, and in firms dependent on external finance. Firms connected to election winners invest more, earn better operating performance, hold more cash, and enjoy better long-term stock performance.