Social Capital, Investments and External Financing

53 Pages Posted: 30 May 2018

See all articles by David Javakhadze

David Javakhadze

Florida Atlantic University

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

Dan W. French

Lamar University; University of Missouri at Columbia

Date Written: November 10, 2015

Abstract

This study examines the effects of managerial social capital on investment sensitivity to cash flow and Q. Using a large cross-country sample of companies for the period 1999–2012 and a traditional investment-Q framework, we discover that social capital reduces a firm's dependence on internally generated cash. We find that social capital is positively associated with investment sensitivity to Q. We further determine that social capital positively affects the sensitivity of external finance to Q, while inversely influencing the sensitivity of external finance to cash flow. These effects of social capital are stronger in markets characterized by the weak legal protection of investors. Our findings are robust to alternative model specifications, different variable measurements, and tests for endogeneity.

Keywords: Social capital Social networks Investment Q

JEL Classification: G31, Z13

Suggested Citation

Javakhadze, David and Ferris, Stephen P. and French, Dan W., Social Capital, Investments and External Financing (November 10, 2015). Journal of Corporate Finance, Vol. 37, 2016, Available at SSRN: https://ssrn.com/abstract=3180964

David Javakhadze (Contact Author)

Florida Atlantic University ( email )

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

Stephen P. Ferris

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)

Dan W. French

Lamar University ( email )

PO Box 10745
Beaumont, TX 77710
United States
409-880-8603 (Phone)

University of Missouri at Columbia ( email )

Columbia, MO Columbia 65211
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
42
Abstract Views
351
PlumX Metrics