Managerial Social Networks Versus Political Connections: Evidence from Firms’ Access to Informal Financing Resources

51 Pages Posted: 1 Feb 2016

See all articles by Gary Gang Tian

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Qigui Liu

Department of Finance and Accounting, School of Management, Zhejiang University

Jinbo Luo

Jiangxi University of Finance and Economics

Date Written: January 31, 2016

Abstract

This study investigates how managerial social networks, through executive membership of an industry association, play a role in helping firms obtain trade credit, while political connections do not. We document that firms whose managers have such social networks receive more trade credit, especially in firms which either have a low bank loan ratio or have limited access to formal financing. The business environment, for example, high regional competition and product market competition, also strengthens the positive relationship between managers’ social networks and firms’ access to trade credit. We further provide evidence that managers’ social networks, especially those established by the founders have a positive effect on firm value and they play a more important role during the crisis period from 2008 to 2009. Our results are robust to a series of robustness and endogeneity tests. Overall, we argue that managerial social networks other than political connections help firms, especially those with limited access to formal financing, to overcome institutional discrimination and obtain informal financing resources, and thus create value to shareholders.

Keywords: Trade credit; Managerial social networks; Political connections; Informal financing

JEL Classification: G32, G34

Suggested Citation

Tian, Gary Gang and Liu, Qigui and Luo, Jinbo, Managerial Social Networks Versus Political Connections: Evidence from Firms’ Access to Informal Financing Resources (January 31, 2016). Asian Finance Association (AsianFA) 2016 Conference. Available at SSRN: https://ssrn.com/abstract=2725659 or http://dx.doi.org/10.2139/ssrn.2725659

Gary Gang Tian (Contact Author)

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Room 513, Building E4A
North Ryde, NSW, 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Qigui Liu

Department of Finance and Accounting, School of Management, Zhejiang University ( email )

Hangzhou, Zhejiang Province 310058
China

Jinbo Luo

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

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