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Does social capital influence corporate risk-taking?

Humnath Panta

Journal of Behavioral and Experimental Finance, 2020, vol. 26, issue C

Abstract: This paper explores the influence of social capital on corporate risk-taking using a large sample of publicly traded US firms. We predict that firms with high social capital display a higher level of risk-taking behavior. Consistent with our prediction, we find a negative relationship between corporate risk-taking and social capital. This paper shows that the social environment transmits valuable capital to individuals and thereby influences their corporate decision-making process. We also find that the combined effects of excessive risk-taking and social capital result in value destruction to the firm. Our test results are robust to alternatives measures of risk-taking, addressing endogeneity issues, and alternative model specifications. The paper contributes to the finance literature by demonstrating social capital as an important determinant in the corporate decision-making process, particularly in corporate risk-taking decisions.

Keywords: Risk-taking; Social capital; Trust; Idiosyncratic risk; Systematic risk (search for similar items in EconPapers)
JEL-codes: D71 D81 G30 G32 G41 Z13 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:26:y:2020:i:c:s2214635019300772

DOI: 10.1016/j.jbef.2020.100301

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