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The wisdom and madness of crowds: How information networks and board cognition help or hinder firm performance across the business cycle

Hudson, Kerry and Morgan, Robert 2021. The wisdom and madness of crowds: How information networks and board cognition help or hinder firm performance across the business cycle. Long Range Planning , 102180. 10.1016/j.lrp.2021.102180
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Abstract

We know little of why a minority of firms pursue counter-cyclical strategies and consequently outperform competitors during recessions. Based on the theory of institutional isomorphism, we hypothesize that these firms avoid the mimetic and normative pressures that promote strategic convergence during uncertainty. We demonstrate these effects at the board-level in a sample of 1,615 U.S. firms. Mimetic processes are evident, with firms’ connectedness in board interlock networks attenuating profitability and decreasing firm value during recessions—a reversal of the positive effects during expansions. Normative pressures arise from homogeneity in directors’ educational and professional experience, with greater consequences for long-term performance. Overall, recessionary performance is improved when firms occupy relatively isolated positions in informational networks and appoint directors from a range of backgrounds.

Item Type: Article
Date Type: Published Online
Status: In Press
Schools: Business (Including Economics)
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Publisher: Elsevier
ISSN: 0024-6301
Date of First Compliant Deposit: 5 January 2022
Date of Acceptance: 19 December 2021
Last Modified: 05 Jan 2022 18:34
URI: https://orca.cardiff.ac.uk/id/eprint/146327

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