We show that the similarity of a firm’s technological expertise with that of other firms affects managerial labor market outcomes. Using each firm’s patent portfolio to estimate its technological expertise, we find that its similarity in technological expertise with other firms is strongly related to the benchmark group used for CEO compensation and job transitions. Furthermore, we show that a firm’s CEO pay is positively associated with the CEO compensation levels of technologically similar firms. Our results thus demonstrate the crucial role of technological similarity in determining the value of outside options and the boundaries of the managerial labor market.

We study the effect of corporate cultural similarity on merger decisions and outcomes. Using the similarity in firms’ corporate social responsibility characteristics to proxy for cultural similarity, we find that culturally similar firms are more likely to merge. Moreover, these mergers are associated with greater synergies, superior long-run operating performance, and fewer write-offs of goodwill. Our evidence is consistent with the notion that cultural similarity eases post-deal integration. Our results contribute to the literature on the determinants of merger success, provide new evidence on the impact of corporate culture, and offer a new approach to defining firms’ cultural similarity.