Two years ago, the New York Times ran an article, The Facebook of Wall Street's Future alongside a flowchart of 100 new generation deal makers. The flowchart identifies 100 deal makers, provides the names of the universities they attended, and where they currently work. The map of connections between the deal makers illustrates that relationships formed at colleges and universities can impact their careers. The result, notes the article, is a wide universe of young bankers, lawyers, private equity executives, hedge fund managers and venture capitalists, many linked through relationships that began in undergraduate and graduate schools.

The idea that where one went to school may influence his or her career isn't new, but the growing number of these potential connections is. According to the National Center for Education Statistics, in 1975, schools awarded less than 36,000 MBAs. In 2000, that number topped 112,000-a growth rate of over 300 percent. Couple that notion with the power of the Internet and social networking media, and alumni networks enable more alumni to connect to their former schools and fellow graduates in more ways than ever before.

Christopher Rider, assistant professor of organization & management at Emory University's Goizueta Business School, noticed the New York Times article. It is a nice example of what we believe is true in business despite a lack of empirical research on the matter, he says. Rider's recent research looks to provide empirical evidence and takes the idea further: That where people went to school and where they've worked influences not only their professional success, but the success of their employers-through prior education and employment networks.

At the 2009 Atlanta Competitive Advantage Conference (ACAC), hosted by Goizueta Business School, Rider presented his paper, Embedding Inter-Organizational Relations in Organizational Members' Prior Education and Employment Networks, which focuses on the U.S. private equity industry. In the paper, he shows that private equity firms leverage their members' prior education and employment networks to identify and select new investment partners.

Leveraging various theories and analytical techniques, Rider illustrates that the likelihood of two organizations forming a new relationship increases with the number of prior education and/or employment affiliations shared by the organizations' members, he writes.

Recent research on network dynamics left Rider with a pair of questions. If, as research shows, organizations tend to repeat relationships, then what accounts for the formation of the initial relationship between the two organizations? Additionally, if these inter-organizational relationships emerge due to interpersonal relationships, then how and when were those relationships formed? he wondered.

His paper tackles these two questions by examining how connections-in this case, prior education and employment networks- between two organizations' members influence the likelihood that a new relationship will form between two organizations. Rider contends that contacts made prior to an individuals' participation in a given setting will, he says, influence inter-organizational relationships by conditioning the availability of information on potential organizational partners. In other words, what one knows about potential investment partners is limited by who one knows at the time.

To support this claim, he points to research in the financial sector. Studies show that mutual fund managers invest more heavily in the stocks of companies run by executives who attended the fund manager's college or university. And equity analysts provide better stock recommendations for companies where senior executives attended the same school as the analyst-whether the executives and the analyst knew each other or not. Both studies indicate that investors benefit from information acquired through alumni networks but neither investigate how one's former colleagues might also serve as valuable information sources.

In his paper, Rider formulates several hypotheses built around the central prediction that the more prior educational or employment affiliations shared by two organizations' members, the greater the likelihood the organizations will form a relationship. And he adds that this likelihood should be strongest for organizations that previously formed few or no relationships. Sociological theories offer three reasons why this might be. First, individuals that attended the same school or worked at the same company may know each other or share connections with common third parties. Second, they might participate in similar social activities like alumni receptions or volunteer organizations. Third, they might prefer to do business with investors with similar backgrounds. 

To test his theory, Rider turned to 2006 data regarding U.S. private equity investments; specifically, 8,800 individual members of 1,100 firms that attended 1,098 educational institutions and worked for 12,745 prior employers. Nearly 40 percent of the individuals had gone to one of three schools-Harvard, Stanford or the University of Pennsylvania. In fact, nearly 19 percent of private equity investors were affiliated with Harvard University by at least one degree. In contrast, the most common prior employers were McKinsey & Company, with 251 former employees, and Goldman Sachs with 234-or a combined 5.4 percent of all prior employers.

The results supported Rider's original idea that two firms are more likely to form a relationship if their members share more prior education and/or employment affiliations, he says. As predicted, these prior relations were most influential in facilitating the formation of relationships between organizations that had formed few, if any, relationships in previous years. A one standard deviation increase in the number of shared affiliations increases the likelihood that the two firms form a new relationship by approximately 5 percent, Rider writes.

During his ACAC presentation, Rider concedes that the numbers showing the likelihood of such relationships forming may seem modest, but he points out that the results are quite meaningful. To put this in context, he explains that each of the firms analyzed, on average, made eight investments in 2006. Over several years, small preferences for embedding deals in prior affiliation networks are likely to account for great variance in firms' network positions, he explains. Simulation models would likely illuminate just how advantageous it is-in terms of occupying a central co-investment network position-for a private equity firm to employ investors who attended Harvard or Goldman Sachs instead of, say, Georgetown [which represents 1.4 percent of investors' prior educational affiliations] or J.P. Morgan [which represents the prior employer of 1.4 percent of investors].

A quick glance at the flowchart accompanying the New York Times article underscores what Rider's research illustrates-the power of certain schools as career starting points, according to the article. Rider's paper goes a step further in demonstrating that it's not only the individual whose career is affected by prior education and prior employer networks, these connections also influence the formation of inter-organizational relationships. As Rider alluded to, future studies are likely to show how beneficial this is for firms looking to improve their co-investment network position. And as he told the audience at the ACAC, it also highlights the advantages of access to higher education and labor market opportunities.