The Economic Value of Interfirm Employee Networks: Evidence from a Business Card Management Application
DescriptionA large body of literature on social networks suggests that social connections between individuals are an important determinant of economic performance (Granovetter 1985, 2005; Burchardi and Hassan 2013). Recent studies in finance and accounting argue that top-management networks (e.g., boardroom networks, social ties between senior executives and analysts/auditors) play an important role in decision-making processes, yet little is known about the potential implications of connections between rank-andfile employees. Moreover, the extant literature focuses on one aspect (e.g. sharing boardrooms or educational background) among the many different channels through which individuals can connect with one another. In this proposed study, we aim to tackle these limitations by exploiting a unique dataset on interfirm employee networks through a business card management application in Korea. Using this proprietary dataset, we will construct interfirm employee network metrics that cover various employee levels and investigate their relation to firm-level economic outcomes. Specifically, we will first construct measures that capture the quantity and quality of connections between employees, including the total number of connections, the centrality of connections, and connections to economically linked firms. Then we will examine how those connections affect firm performance, including operating performance, productivity, and innovations. We predict that firms with better-connected employees outperform others. In addition, we expect our main results to be stronger for connections between economically related firms and with high-ranking employees, and for firms with a high-quality internal information environment. Finally, to draw a causal inference, we will exploit Korea’s so-called Kim Young-Ran Act, officially the Anti-Corruption and Bribery Prohibition Act, as an exogenous shock to the connections. To our knowledge, our study is one of the first to empirically estimate the effects of rank-and-file employee networks on firm growth. The prior literature remains silent on low-ranking employee connections, largely because the relevant data are unavailable. Our study overcomes this challenge by using a unique dataset on interfirm employee networks. This study will also extends the literature on social networks by providing evidence from more direct and credible connection measures. Prior research on social ties generally assumes that individuals have connections if they have common experiences, such as attending the same educational institution, working at the same company, or serving in the military. In contrast, our measures of connections are based on the exchange of business cards, which happens primarily through face-to-face meetings in which information transfers take place.
|Effective start/end date||1/01/19 → …|