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Protecting Your Friends: The Role of Connections in Division Manager Careers

Published online by Cambridge University Press:  22 April 2024

Charles J. Hadlock Open the ORCID record for Charles J. Hadlock [Opens in a new window] ,
Jing Huang ,
Paul Obermann  and
Joshua R. Pierce
Charles J. Hadlock*
Affiliation:
University of Pittsburgh, Katz Graduate School of Business
Jing Huang
Affiliation:
Ernst and Young [email protected]
Paul Obermann
Affiliation:
Idaho State University, College of Business [email protected]
Joshua R. Pierce
Affiliation:
University of Alabama, Culverhouse College of Business [email protected]
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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We find that division managers who are connected to the CEO are substantially less likely than others to depart from the firm and are more likely to be promoted. Connected managers are protected when performance is poor, and they display no special ability to improve performance given this protection. Connections matter more in weak governance/incentive environments, and the external labor market and stock market appear skeptical of connected managers’ talents. While much of the evidence suggests inefficient favoritism, connected managers are protected more in peripheral segments, suggesting a possible efficiency benefit in helping to resolve intrafirm information problems.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 34
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2024. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank two anonymous referees, Anup Agrawal, Ran Duchin (the editor), Byoung-Hyoun Hwang, Lei Kong, Shawn Mobbs, Denis Sosyura, Dek Terrell, Xiang Zheng, and seminar participants at Auburn University, Babson College, Idaho State University, the Universities of Alabama, Connecticut, and Pittsburgh, the 2022 University of Alberta Frontiers of Finance Conference, and the 2023 Midwest Finance Association meetings for their helpful comments and suggestions. All errors remain our own.

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