From rivals to allies? : CEO connections in an era of common ownership / Dennis Hutschenreiter, Qianshuo Liu ; editor: Halle Institute for Economic Research (IWH) - Member of the Leibniz Association

Abstract

Institutional common ownership of firm pairs in the same industry increases the likelihood of a preexisting social connection among their CEOs. We establish this relationship using a quasi-natural experiment that exploits institutional mergers combined with firms’ hiring events and detailed information on CEO biographies. In addition, for peer firms, gaining a CEO connection from a hiring firm’s CEO appointment correlates with higher returns on assets, stock market returns, and decreasing product similarity between companies. We find evidence consistent with common owners allocating CEO connections to shape managerial decision-making and increase portfolio firms' performance.