Management for helpful comments. We also thank Nick Kennedy, Stephen Wilson, Laura Dutson, Matthew Healey, Meng Ning, Courtney Stone, and Bennett Surajat for excellent research assistance. We are grateful to BoardEx and Linda Cechova for providing firm board data, Morningstar and Annette Larson for providing mutual fund data, and to the Chicago GSB Initiative on Global Markets for financial support. This paper uses social networks to identify information transfer in security markets. We focus on connections between mutual fund managers and corporate board members via shared education networks. We find that portfolio managers place larger bets on firms they are connected to through their network, and perform significantly better on these holdings relative to their non-connected holdings. A replicating portfolio of connected stocks outperforms a replicating portfolio of non-connected stocks by up to 7.8 % per year. Returns are concentrated around corporate news announcements, consistent with mutual fund managers gaining an informational advantage through the education networks. Our results

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.

Abstract Modern …nancial systems exhibit a high degree of interdependence. There are different possible sources of connections between …nancial institutions, stemming from both the asset and the liability side of their balance sheet. For instance, banks are directly connected through mutual exposures acquired on the interbank market. Likewise, holding similar portfolios or sharing the same mass of depositors creates indirect linkages between …nancial institutions. Broadly understood as a collection of nodes and links between nodes, networks can be a useful representation of …nancial systems. By providing means to model the speci…cs of economic interactions, network analysis can better explain certain economic phenomena. In this paper we argue that the use of network theories can enrich our understanding of …nancial systems. We review the recent developments in …nancial networks, highlighting the synergies created from applying network theory to answer …nancial questions. Further, we propose several directions of research. First, we consider the issue of systemic risk. In this context, two questions arise: how resilient …nancial networks are to contagion, and how …nan-cial institutions form connections when exposed to the risk of contagion. The second issue we consider is how network theory can be used to explain freezes in the interbank market of the type we have observed in August 2007 and subsequently. The third issue is how social networks can improve investment decisions and corporate governance. Recent empirical work has provided some interesting results in this regard. The fourth issue concerns the role of networks in distributing primary issues of securities as, for example, in initial public o¤erings, or seasoned debt and equity issues. Finally, we consider the role of networks as a form of mutual monitoring as in micro…nance.

We examine whether networks among incumbent venture capital firms help restrict entry into local VC markets in the U.S., thus improving VCs ’ bargaining power over entrepreneurs. We show that VC markets with more extensive networking among the incumbent players experience less entry. The effect is sizeable economically and robust to endogeneity concerns. Entry is accommodated if the entrant has established relationships with one or more incumbents in its home market. We also document that companies seeking venture capital raise money on worse terms in more densely networked markets, and that increased entry into a market is associated with companies receiving increased valuations.

This study focuses on the political and institutional influences that lead organizational decision makers to avoid terminating unsuccessful investments, even when there is competition and they have the experience and incentives to maximize profits. I examine multilevel influences on sequential investment decisions in the U.S. venture capital industry through a qualitative study of the investment process and a quantitative examination of venture capital investments between 1989 and 2004. Results show that venture capital firms become less likely to terminate investments as they participate in more rounds of financing, despite evidence that expected returns are declining over rounds. Intraorganizational politics, as well as coercive and normative pressures from co-investors and limited partners, may influence the decisions to continue or terminate investments, regardless of the expected returns. The findings suggest that organizational safeguards designed to mitigate individual biases may give rise to political and institutional influences, which may in turn undermine the effectiveness of the decision process. • Bounds on individual rationality shape and constrain the efficacy of organizational decisions (e.g., March and Simon, 1958; Cyert and March, 1963). From a normative perspective, organizations should be able to avoid individual decision errors for several reasons. First, organizations have at their disposal several safeguards, such as monitoring or incentives that

Why don’t successful venture capitalists eliminate excess demand for their follow-on funds by aggressively raising their performance fees? We propose a theory of learning that leads to informational hold-up in the VC market. Investors in a fund learn whether the VC has skill or was lucky, whereas potential outside investors only observe returns. This gives the VC’s current investors hold-up power when the VC raises his next fund: Without their backing, he cannot persuade anyone else to fund him, since outside investors would interpret the lack of backing as a sign that his skill is low. This hold-up power diminishes the VC’s ability to increase fees in line with performance. The model provides a rationale for the persistence in after-fee returns documented by Kaplan and Schoar (2005) and predicts low expected returns among first-time funds, persistence in investors from fund to fund, and over-subscription in follow-on funds raised by successful VCs. Empirical evidence from a large sample of U.S. VC funds raised between 1980 and 2006 is consistent with these predictions.

We study the impact of social networks on agents’ ability to gather superior information about firms. Exploiting novel data on the educational backgrounds of sell side equity analysts and senior officers of firms, we test the hypothesis that analysts’ school ties to senior officers impart comparative information advantages in the production of analyst research. We find evidence that analysts outperform on their stock recommendations when they have an educational link to the company. A simple portfolio strategy of going long the buy recommendations with school ties and going short buy recommendations without ties earns returns of 6.60 % per year. We test whether Regulation FD, targeted at impeding selective disclosure, constrained the use of direct access to senior management. We find a large effect: pre-Reg FD the return premium from school ties was 9.36 % per year, while post-Reg FD the return premium is nearly zero and insignificant. In contrast, in an environment that did not change selective disclosure regulation (the UK), the analyst school-tie premium has remained large and significant over the entire sample period.

Why and how do resources provide sources of competitive advantage? This study sheds new light on this central question of resource-based theory by allowing a single resource—entrepreneurial-firm patents—to play distinctive roles in different competitive are-nas. As rights to exclude others, patents serve a well-known role as legal safeguards in product markets. As quality signals, patents also could improve access and the terms of trade in factor input markets. Based on the financing activities of 370 venture-backed semiconductor start-ups, we provide new evidence that patents confer dual advantages in strategic factor markets, improved access and terms of trade, above and beyond their added product-market protec-tion. The study has important implications for empirical tests of resource-based theory and the measurement of resource value. Copyright 2013 John Wiley & Sons, Ltd. It is never the resources that are “inputs ” in the production process, but only the services that the resources can render. Edith Penrose (1959: 25)

I show that stock market shocks have important and lasting effects on the careers of MBAs. Stock market conditions while MBA students are in school have a large effect on whether they go directly to Wall Street upon graduation. Further, starting on Wall Street immediately upon graduation causes a person to be more likely to work there later and to earn, on average, substantially more money. The empirical results suggest that investment bankers are largely “made ” by circumstance rather than “born ” to work on Wall Street. Back in January 1987...Wall Street was booming...When the job offers rolled in, students played one house against another. They were the supply, and the demand was strong...After the crash, the receptions that had once played to packed houses were drawing a few dozen students. Out went the tenderloin on toast and the shrimp; in came the dips and the hot dogs on toothpicks. The school placement office sent out a memo suggesting career ‘flexibility ’ for finance majors like me; we should look into opportunities in manufacturing and consulting. (Brown (1988)) INVESTMENT BANKERS ARE CRITICAL FIGURES in financial markets. They are involved in virtually all large financial transactions, including mergers and acquisitions, initial public offerings, and other securities offerings. The business press, discussions in classrooms and hallways at leading business schools, and even movies and novels suggest that investment bankers are well compensated for their efforts. But how do these people who have such an important influence on financial markets get into their positions? Are some people endowed with great financial acumen, honing these skills in college and MBA programs on their inevitable progression to a career on Wall Street? Or are there many

We examine the role of angel investors in early venture financing using a new sample of 182 Series A preferred stock rounds. Our sample includes deals where angels invest on their own and those where they co-invest with venture capitalists (VCs), as well as VC-only deals. We find that angels invest on their own in younger and smaller firms, where the founder retains more ownership. Control rights in these deals are also more entrepreneur-friendly. However, these firms are as likely as the VC-backed firms to have successful liquidity events, and more likely to survive, though many of the surviving firms are inactive, indicating that angels may have little incentive or limited ability to liquidate such firms. In contrast, when deals are large, we find that companies that obtain Series A financing entirely from VCs have better outcomes than those in which VCs and angels co-invest. One interpretation is that larger deal size adds power to VC syndicates, and these powerful syndicates might attempt to block other investors from higher quality deals, resulting in adverse selection for angels in larger mixed deals. Alternatively, experienced founders and VCs may prefer VC-only