The ties that bind: Social capital and perceived competition during financial crisis

Abstract

Social capital provides various benefits for organizations. However, it may serve as constraints when strong networks prevent managers from making a timely response to emerging risks. Using a sample of U.S. listed firms around the financial crisis period, we predict and find that social capital reduces a level of perceived competition by managers. Additional analyses suggest that the incomplete perception of competition leads to low investment efficiency and poor firm performance during the crisis. Collectively, our study shows that over-embedded CEOs in social relationships may fail to take proper actions against signals of market downturns, leading to poor future performance.