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Leaky Director Networks and Innovation Herding

Felipe Cabezon1; Gerard Hoberg2

1 Pamplin College of Business, Virginia Tech , · 2 Marshall School of Business, University of Southern California ,

Review of Financial Studies 2026 open access

Abstract We first document that, despite potential legal issues, overlapping directors are surprisingly prevalent among direct competitors. Using panel data regressions and plausibly exogenous shocks, we find that competing firms in markets with dense overlapping-director networks experience innovation herding, lose product differentiation, and, ultimately, perform poorly. Novel text-based network propagation tests of technologies show that intellectual property leakage plays a role as firms with dense overlapping director networks experience faster propagation of technologies to competitors. Our findings suggest a coordination problem where industry participants cannot stop rivals from earning small gains from leakage despite much larger industry-wide negative externalities.

DOI
10.1093/rfs/hhaf048
Volume
39 (1)
Pages
158-197
Language
en
Export
BibTeX
Sources
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