CFO social capital and private debt

Executive Network Centrality and Stock Liquidity

“…Since networks both enhance reputation benefits (e.g., spread good reviews, create job opportunities) and punish deviance (Burt, ; Brass and Labianca, ), more central managers have both greater ability to communicate and greater incentive to comply with explicit and implicit expectations. Centrality also mitigates the ability of managers to misinform market participants (Fogel, Jandik, and McCumber, ) and lowers the incentive to distort information if the network effects lower performance turnover sensitivity (El‐Khatib et al., ) or increase the likelihood of being hired elsewhere (Liu, ). Thus, ceteris paribus, more central managers are more likely to disclose and to disclose more valuable information that, in turn, may decrease adverse selection and improve stock liquidity.…”

“…Executive network centrality has been shown to decrease the cost of equity (Ferris, Javakhadze, and Rajkovic, ) and the cost of debt (Fogel, Jandik, and McCumber, ). In both cases, the authors argue that executive connections decrease information asymmetries and agency problems between the suppliers and consumers of capital.…”

“…Although we do not consider insider trades in this study, legal, nonroutine insider trades of executives with greater network centrality have been shown to be more profitable for central managers and more informative of future stock prices (El‐Khatib et al., ; El‐Khatib, Jandik, and Jandik, ; Fogel, Jandik, and McCumber, ).…”

Executive Network Centrality and Stock Liquidity

“…Though executives are not traders, there are several plausible reasons as to why more central managers may reduce information asymmetry for market participants. 1 Several studies find that the social networks of executives affect firm outcomes (Hwang and Kim, 2009;Engelberg, Gao, and Parsons, 2012;Fracassi and Tate, 2012;Fogel, Ma, and Morck, 2014;Ishii and Xuan, 2014;El-Khatib, Fogel, and Jandik, 2015;Fogel, Jandik, and McCumber, 2018;Karolyi, 2018) and market outcomes (Hochberg, Ljungqvist, and Lu, 2007;Kuhnen, 2009;Cohen, Frazzini, and Malloy, 2010;Griffin, Shu, and Topaloglu, 2012;Akbas, Meschke, and Wintoki, 2016). Executives have detailed, day-to-day knowledge of their firms.…”

“…Since networks both enhance reputation benefits (e.g., spread good reviews, create job opportunities) and punish deviance (Burt, 2005;Brass and Labianca, 2006), more central managers have both greater ability to communicate and greater incentive to comply with explicit and implicit expectations. Centrality also mitigates the ability of managers to misinform market participants (Fogel, Jandik, and McCumber, 2018) and lowers the incentive to distort information if the network effects lower performance turnover sensitivity (El-Khatib et al, 2015) or increase the likelihood of being hired elsewhere (Liu, 2010). Thus, ceteris paribus, more central managers are more likely to disclose and to disclose more valuable information that, in turn, may decrease adverse selection and improve stock liquidity.…”