CEO social capital, risk-taking and corporate policies

Stephen P. Ferris, David Javakhadze and Tijana Rajkovic

Journal of Corporate Finance, 2017, vol. 47, issue C, 46-71

Abstract: We provide the first direct empirical evidence of the effect of CEO social capital on aggregate corporate risk-taking. Our theory predicts that CEOs with high social capital display higher levels of risk-seeking behavior. Consistent with this prediction, we find a positive association between CEO social capital and aggregate corporate risk-taking. Examining the channel, we show that social ties cause corporate policy actions, and these actions lead to greater volatilities in stock returns and earnings. In addition, we uncover a number of factors that significantly moderate the effects of social capital on risk-taking. We also show that this increase in risk-taking is value-enhancing to the firm. Our results are robust to alternative proxies for risk-taking, alternative model specifications, and tests for endogeneity.

Keywords: Social capital; Social networks; Corporate risk-taking (search for similar items in EconPapers)
JEL-codes: G30 Z13 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (80)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:47:y:2017:i:c:p:46-71

DOI: 10.1016/j.jcorpfin.2017.09.003

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