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Social Capital and Managers’ Use of Corporate Resources

Author

Listed:
  • Ziqi Gao

    (Australian National University)

  • Leye Li

    (UNSW Sydney)

  • Louise Yi Lu

    (Australian National University)

Abstract

This study investigates how social capital affects managers’ use of corporate resources. We find that for firms located in U.S. counties with a high level of social capital, (i) corporate cash holdings have higher marginal value, (ii) the contribution of capital expenditures to shareholder value is higher, and (iii) acquirers experience higher announcement-period abnormal stock returns. We further find that social capital decreases both over- and under-investment, and thus improves ex post corporate investment efficiency. Our evidence suggests that in communities with a high level of social capital, strong social norms and dense social networks constrain unethical corporate behavior, which induces more efficient use of corporate resources.

Suggested Citation

  • Ziqi Gao & Leye Li & Louise Yi Lu, 2021. "Social Capital and Managers’ Use of Corporate Resources," Journal of Business Ethics, Springer, vol. 168(3), pages 593-613, January.
    • Handle: RePEc:kap:jbuset:v:168:y:2021:i:3:d:10.1007_s10551-019-04223-7
    DOI: 10.1007/s10551-019-04223-7
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