Managerial Risk-Reducing Incentives and Social Capital

Posted: 8 Oct 2018 Last revised: 1 Jun 2020

See all articles by Amon Chizema

Amon Chizema

Loughborough University - Business School

Jing-Ming Kuo

University of Birmingham - Birmingham Business School

Qingjing Zhang

University of Southampton - Southampton Business School

Zhuang Zhang

University of Southampton - Southampton Business School

Date Written: September 28, 2018

Abstract

This study investigates the impact of managerial risk-reducing incentives on firm’s social and exchange capital. Using CEO inside debt holdings to proxy for the incentives of risk-averse managers, we find that CEOs with more inside debt holdings are likely to invest more in building social capital, which targets broader society and can offer anti-risk protection advantages, to shield the value of their inside debt. However, our results further show that managerial risk-reducing incentives have no impact on corporations’ exchange capital. These findings corroborate the view that CEOs invest in social capital as a risk management strategy. Furthermore, this paper presents an investigation into the role institutional investors play in the impact of managerial risk-reducing incentives on social capital. Our results suggest that institutional investors constrain CEOs that have greater inside debt incentives from investing in social capital. However, they are still willing to increase the investment in social capital for risk management purposes when firm risk is high.

Keywords: Social capital; Managerial risk-reducing incentives; CEO inside debt holdings; Institutional influence; Exchange capital; Firm risk

JEL Classification: M12; M14; G23; G32; G34

Suggested Citation

Chizema, Amon and Kuo, Jing-Ming and Zhang, Qingjing and Zhang, Zhuang, Managerial Risk-Reducing Incentives and Social Capital (September 28, 2018). Available at SSRN: https://ssrn.com/abstract=3256729

Amon Chizema

Loughborough University - Business School ( email )

Ashby Road
Loughborough
Loughborough, LE11 3TU
Great Britain

Jing-Ming Kuo (Contact Author)

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
University House
Birmingham, Birmingham B15 2TT
United Kingdom

Qingjing Zhang

University of Southampton - Southampton Business School ( email )

SO17 1BJ
United Kingdom

Zhuang Zhang

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

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