Does it pay to be socially connected with wall street brokerages? Evidence from cost of equity

Thanh Son Luong, Buhui Qiu () and Wu, Yi (Ava)

Journal of Corporate Finance, 2021, vol. 68, issue C

Abstract: We show that social connections between a firm's executives and directors and brokerages that follow the firm decrease the firm's cost of equity. We use quasi-natural experiments to address endogeneity concerns and find that the uncovered effect of firm-brokerage social connections on cost of equity is likely causal. The effect is found to be more pronounced for firms with more soft information, opaque information environments, tight financial constraints, weak corporate monitoring, or high executive equity ownership. Further, consistent with the evidence on cost of equity, we find that firm-brokerage social connections reduce SEO underpricing, decrease information asymmetry in stock markets, and improve the firm's equity valuation.

Keywords: Firm-brokerage social connections; Cost of equity; Information asymmetry (search for similar items in EconPapers)
JEL-codes: G10 G30 G32 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:68:y:2021:i:c:s0929119921000602

DOI: 10.1016/j.jcorpfin.2021.101939

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