Social Structure, Employee Mobility, and the Circulation of Client Ties

We explore factors that influence the circulation of client-service firm relationships between firms in the same market for professional services. Circulation refers to the dissolution of a client-service firm market tie and the formation of a new tie involving the same client but a new professional service firm. Building on research in social embeddedness and the structure of markets, we argue that the circulation of client-service firm relationships is affected by three social signals: the mobility of exchange managers between professional service firms, the size and market strategy of professional service firms, and the similarity of new service firms to clients' previous exchange partners. Using data on advertising agency-client market ties, we find that client ties are more likely to circulate to large agencies, agencies with many market ties, and to agencies that are similar to a client's previous advertising agency. The circulation of client ties is also more likely when new agencies hire exchange managers from a client's previous agency. This effect is stronger when exchange managers circulate to agencies of equal or higher status as their previous employer. We discuss the implications of our findings for social embeddedness research and for the study of professional service firms.