Social Proximity to Capital: Implications for Investors and Firms

59 Pages Posted: 28 May 2020

See all articles by Theresa Kuchler

Theresa Kuchler

New York University (NYU)

Yan Li

Baruch College, CUNY

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: May 2020

Abstract

We use social network data from Facebook to show that institutional investors are more likely to invest in firms from regions to which they have stronger social ties. This effect of social proximity on investment behavior is distinct from the effect of geographic proximity. Social connections have the largest influence on investments of small investors with concentrated holdings as well as on investments in firms with a low market capitalization and little analyst coverage. We also find that the response of investment decisions to social connectedness affects equilibrium capital market outcomes: firms in locations with stronger social ties to places with substantial institutional capital have higher institutional ownership, higher valuations, and higher liquidity. These effects of social proximity to capital on capital market outcomes are largest for small firms with little analyst coverage. We find no evidence that investors generate differential returns from investments in locations to which they are socially connected. Our results suggest that the social structure of regions affects firms' access to capital and contributes to geographic differences in economic outcomes.

Keywords: institutional investors, Social Connectedness Index, Social Networks

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 (May 2020). CEPR Discussion Paper No. DP14806, Available at SSRN: https://ssrn.com/abstract=3612875

Theresa Kuchler (Contact Author)

New York University (NYU) ( email )

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

Yan Li

Baruch College, CUNY ( email )

17 Lexington Avenue
New York, NY 10021
United States

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

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1
Abstract Views
140
PlumX Metrics