CEO Social Capital, Risk-Taking and Corporate Policies

72 Pages Posted: 20 Sep 2017 Last revised: 21 Nov 2017

See all articles by Stephen P. Ferris

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

David Javakhadze

Florida Atlantic University

Tijana Rajkovic

San Jose State University

Date Written: September 8, 2017

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

JEL Classification: G30; Z13

Suggested Citation

Ferris, Stephen P. and Javakhadze, David and Rajkovic, Tijana, CEO Social Capital, Risk-Taking and Corporate Policies (September 8, 2017). Journal of Corporate Finance, Volume 47, December 2017, Pages 46-71, Available at SSRN: https://ssrn.com/abstract=3037281

Stephen P. Ferris (Contact Author)

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

David Javakhadze

Florida Atlantic University ( email )

College of Busines
777 Glades Road
Boca Raton, FL 33433
United States
561-297-2914 (Phone)

Tijana Rajkovic

San Jose State University ( email )

One Washington Square BT851
San Jose, CA 95192
United States
(408) 924-3467 (Phone)

HOME PAGE: http://www.sjsu.edu/people/tijana.rajkovic/

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