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CFO social capital and private debt

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  • Fogel, Kathy
  • Jandik, Tomas
  • McCumber, William R.

Abstract

The cost and terms of private debt are affected by the social capital of the borrowing firm's chief financial officer (CFO), proxied by measures of social network centrality that identify the relative position of CFO in the hierarchy of executives. Firms with CFOs possessing higher social capital issue new loans with lower spreads and fewer covenant restrictions, controlling for all direct connections between borrowers and lenders. Spread reductions are stronger for opaque firms and when CFOs lack objective reputation verification. The results hold when controlling for CFO personal characteristics and firm attributes related to network centrality.

Suggested Citation

  • Fogel, Kathy & Jandik, Tomas & McCumber, William R., 2018. "CFO social capital and private debt," Journal of Corporate Finance, Elsevier, vol. 52(C), pages 28-52.
    • Handle: RePEc:eee:corfin:v:52:y:2018:i:c:p:28-52
    DOI: 10.1016/j.jcorpfin.2018.07.001
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    More about this item

    Keywords

    Social capital; Network centrality; Debt contracting; Loan spreads; Debt covenants; Chief financial officer;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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