| This thesis accomplishes two things. First, it studies how a firm's position within a hierarchy of firms in an industry affects its choice of actions; in particular its risk-taking behavior. Prior studies have demonstrated that performance relative to aspiration levels has a significant effect on risk-taking. This paper contributes to this literature by presenting a theory of how social comparison and the focal firm's position within a social structure affect risk-taking behavior. The basic argument is that hierarchical position affects the perceptions of actors and through that their likelihood of taking risky actions. The argument is tested using data on the acquisition activity of U.S. advertising agencies from 1980 to 1989. Results from parametric estimation give strong evidence that an actor's position vis-à-vis its immediate neighbors significantly affects its risk-taking. Additionally, semiparametric estimation identifies the likely existence of size thresholds around which risk-taking activity is intensified. Hence, this paper contributes to the growing literature on the structural approach to markets by studying how social comparison processes affect a firm's choice of actions.; Second, it formulates a model of identity and derived interesting results from it. The model allows a formal study of the process related to identity creation and maintenance. Further research will address open questions related to this model. |
