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Social Capital and Managers’ Use of Corporate Resources

Ziqi Gao (), Leye Li () and Louise Yi Lu ()
Additional contact information
Ziqi Gao: Australian National University
Leye Li: UNSW Sydney
Louise Yi Lu: Australian National University

Journal of Business Ethics, 2021, vol. 168, issue 3, No 8, 593-613

Abstract: Abstract This study investigates how social capital affects managers’ use of corporate resources. We find that for firms located in U.S. counties with a high level of social capital, (i) corporate cash holdings have higher marginal value, (ii) the contribution of capital expenditures to shareholder value is higher, and (iii) acquirers experience higher announcement-period abnormal stock returns. We further find that social capital decreases both over- and under-investment, and thus improves ex post corporate investment efficiency. Our evidence suggests that in communities with a high level of social capital, strong social norms and dense social networks constrain unethical corporate behavior, which induces more efficient use of corporate resources.

Keywords: Social capital; Cash holdings; Capital expenditure; Acquisitions; Agency problem; Investment efficiency (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10551-019-04223-7

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