Abstract
Abstract We find that a firm's cost of equity is inversely related to the level of social capital in the state where the firm is headquartered. Further, the cost of equity declines when firms move their headquarters from a low-social-capital state to a state with higher social capital. The negative relation between social capital and the cost of equity is statistically significant only for firms facing relatively low levels of product–market competition and is not significant for firms with good firm-specific reputations. We interpret these findings as indicating that social capital serves as a societal monitoring mechanism, and can be value-enhancing for firms that are perceived as having greater agency problems and face weak product market monitoring.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
