Firm Social Networks, Trust, and Security Issuances
The European Journal of Finance, Forthcoming
81 Pages Posted: 19 Oct 2020
Date Written: June 24, 2020
We observe that public firms are more likely to issue seasoned stocks rather than bonds when theirs boards are more socially-connected. These connected issuers experience better announcement-period stock returns and attract more institutional investors. This social-connection effect is stronger for firms with severe uncertainty in future performance, higher risk of being undersubscribed, and higher visibility to investors. Our conjecture is that this social-network effect is driven by trust from investors in issuing firms. Given stocks are more sensitive to trust, these trusted firms are more likely to issue stocks than bonds. Trustworthiness plays an important role in firms’ security issuances in capital markets.
Keywords: Social Networks; Security Issuance; Trust; Capital Markets
JEL Classification: L14; M14; J15; Z10; O16
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