Social capital and management commitment

Abstract

ABSTRACT This study examines the role of social capital in fostering beneficial managerial behaviour that serves the interests of shareholders. Specifically, this research focuses on the effects of social capital on managerial ownership and dividend payout policy. We document evidence demonstrating that firms with headquarters in high social capital regions are associated with higher managerial ownership and greater dividend payouts to shareholders. Our findings are consistent with the notion that social capital induces cooperative norms and alleviates agency frictions between managers and shareholders. Additional analysis indicates that managerial ownership increases after a firm moves its headquarters to a county with higher social capital, while dividend payouts do not exhibit a significant change after relocation. In further tests, we find that the association between social capital and managerial ownership weakens after SOX, but that the association between social capital and dividend payouts does not. Finally, we show that both civic norms and associational networks influence the level of managerial ownership and dividend payouts. Overall, our study adds to the literature by deepening the understanding of the impact of social capital in shaping good managerial behaviour at the individual and corporate levels.