Managerial Social Networks Versus Political Connections: Evidence from Firms’ Access to Informal Financing Resources
51 Pages Posted: 1 Feb 2016
Date Written: January 31, 2016
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: Suggested Citation