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Cambridge Finance Workshop - Sudipto Dasgupta

Cambridge Finance Workshop Series are usually held on Thursdays during term time. The workshops are an opportunity for those working in finance to present their latest results or papers.
When Mar 03, 2016
from 01:00 PM to 02:00 PM
Where Room W4.03, Cambridge Judge Business School
Contact Name
Contact Phone 01223768129
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Sudipto DASGUPTA


Chair Professor/Senior Fellow, Institute of Advanced Studies/ Director of Center for Asian Financial Markets/
Co-Editor, International Review of Finance

Title: Innovation, Social Connections, and the Boundary of the Firm

Abstract

In this paper, we propose and provide evidence that the existence of prior social connections between managers or board members of supplier (upstream) and customer (downstream) firms can encourage relation-specific investment and foster innovation by the upstream firms. We show that innovative activities by suppliers increase with the existence and strength of their social connections with customers. To establish causality, we exploit connection breaches due to manager/director retirements or deaths in the (much larger) customer firms and find that innovative activities drop for those suppliers connected to these customer members. Our work sheds light on how social connections can shape the boundary of the firm by mitigating contractual incompleteness and transactions costs, thereby allowing the upstream firms to remain as standalone entities instead of being vertically integrated with the downstream firms.

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