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CEO Social Capital and the Value Relevance of Accounting Metrics

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  • Michael S. Luehlfing

    (College of Business, Louisiana Tech University, Ruston, LA 71272, USA)

  • William R. McCumber

    (College of Business, Louisiana Tech University, Ruston, LA 71272, USA)

  • Huan Qiu

    (Else School of Management, Millsaps College, Jackson, MA 39210, USA)

Abstract

Equity investors value CEO social capital when pricing firm equity. When CEO social capital is high, the value relevance of the book value of equity declines, whereas the value relevance of earnings measures increases. Results are stronger for firms in high-tech industries where information asymmetries are higher. Social capital may be deconstructed into informational and reputational effects and we report that social capital is a meaningful determinant of value relevance in both scenarios. Results are robust to alternative variable definitions, controls and tests for endogeneity. The results strongly suggest that CEO social capital improves the information environment around firms, benefiting users of accounting metrics.

Suggested Citation

  • Michael S. Luehlfing & William R. McCumber & Huan Qiu, 2023. "CEO Social Capital and the Value Relevance of Accounting Metrics," Risks, MDPI, vol. 11(4), pages 1-35, April.
    • Handle: RePEc:gam:jrisks:v:11:y:2023:i:4:p:78-:d:1126776
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    References listed on IDEAS

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