Abstract
Using a unique dataset of CEO social capital between 1998 and 2017, we investigate the degree to which CEO social capital increases or decreases investors’ reliance upon traditional accounting metrics when valuing the equity of non-US firms. We find, ceteris paribus, that investors rely more heavily on the book value of equity, rather than on earnings per share, to value common stock when the firm is led by a CEO with greater social capital. These findings suggest that CEO social capital erodes investors’ confidence in the quality and relevance of earnings; CEOs with higher social capital are entrenched and may engage in rent-seeking behaviors. These findings are robust to country-level development, efficiency, corruption comparisons, and alternative model specifications.
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