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CEO social capital, risk-taking and corporate policies

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  • Ferris, Stephen P.
  • Javakhadze, David
  • Rajkovic, Tijana

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.

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  • Ferris, Stephen P. & Javakhadze, David & Rajkovic, Tijana, 2017. "CEO social capital, risk-taking and corporate policies," Journal of Corporate Finance, Elsevier, vol. 47(C), pages 46-71.
    • Handle: RePEc:eee:corfin:v:47:y:2017:i:c:p:46-71
    DOI: 10.1016/j.jcorpfin.2017.09.003
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    More about this item

    Keywords

    Social capital; Social networks; Corporate risk-taking;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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