Social Proximity to Capital: Implications for Investors and Firms

73 Pages Posted: 16 Jun 2020 Last revised: 7 Feb 2021

See all articles by Theresa Kuchler

Theresa Kuchler

New York University (NYU)

Yan Li

Southwestern University of Finance and Economics (SWUFE) - School of Accounting

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Johannes Stroebel

New York University (NYU) - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Dexin Zhou

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Multiple version iconThere are 3 versions of this paper

Date Written: February 6, 2021

Abstract

We show that institutional investors are more likely to invest in firms from regions to which they have stronger social ties but find no evidence that these investments earn a differential return. Firms in regions with stronger social ties to locations with many institutional investors have higher valuations and liquidity. These effects are largest for small firms with little analyst coverage, suggesting that the investors' behavior is explained by their increased awareness of firms in socially proximate locations. Our results highlight that the social structure of regions affects firms' access to capital and contributes to geographic differences in economic outcomes.

Keywords: Social Networks, Social Connectedness Index, Institutional Investors

JEL Classification: G2, G3, G4

Suggested Citation

Kuchler, Theresa and Li, Yan and Peng, Lin and Stroebel, Johannes and Zhou, Dexin, Social Proximity to Capital: Implications for Investors and Firms (February 6, 2021). Available at SSRN: https://ssrn.com/abstract=3608325 or http://dx.doi.org/10.2139/ssrn.3608325

Theresa Kuchler

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Yan Li

Southwestern University of Finance and Economics (SWUFE) - School of Accounting ( email )

55 Guanghuacun St
Sichuan, 610072
China

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

Johannes Stroebel

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Dexin Zhou (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

55 Lexington Avenue
New York, NY 10010
United States

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