Social Capital and Capital Structure

Abstract

I demonstrate that in the context of a Modigliani-Miller-type model that a firm financing social capital and physical capital will favor equity financing over debt financing without bankruptcy. With bankruptcy, debt financing will be used, but equity financing will be favored by firms that use large amounts of social capital, as it will increase their value.

Keywords: capital structure, social capital, corporate social responsibility, CSR

JEL Classification: G30, G32