Journal
JOURNAL OF BEHAVIORAL AND EXPERIMENTAL FINANCE
Volume 26, Issue -, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.jbef.2020.100301
Keywords
Risk-taking; Social capital; Trust; Idiosyncratic risk; Systematic risk
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This paper explores the influence of social capital on corporate risk-taking using a large sample of publicly traded US firms. We predict that firms with high social capital display a higher level of risk-taking behavior. Consistent with our prediction, we find a negative relationship between corporate risk-taking and social capital. This paper shows that the social environment transmits valuable capital to individuals and thereby influences their corporate decision-making process. We also find that the combined effects of excessive risk-taking and social capital result in value destruction to the firm. Our test results are robust to alternatives measures of risk-taking, addressing endogeneity issues, and alternative model specifications. The paper contributes to the finance literature by demonstrating social capital as an important determinant in the corporate decision-making process, particularly in corporate risk-taking decisions. (C) 2020 Elsevier B.V. All rights reserved.
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