Firm Social Networks, Trust, and Security Issuances

The European Journal of Finance, Forthcoming

81 Pages Posted: 19 Oct 2020

See all articles by Ming Fang

Ming Fang

Martin Tuchman School of Management, New Jersey Institute of Technology

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Zenu Sharma

St John's University; Rensselaer Polytechnic Institute

An Yan

Fordham University - Gabelli School of Business

Date Written: June 24, 2020

Abstract

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

Suggested Citation

Fang, Ming and Hasan, Iftekhar and Sharma, Zenu and Yan, An, Firm Social Networks, Trust, and Security Issuances (June 24, 2020). The European Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3635043

Ming Fang

Martin Tuchman School of Management, New Jersey Institute of Technology ( email )

United States

Iftekhar Hasan (Contact Author)

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Zenu Sharma

St John's University ( email )

8000 Utopia Pkwy
Queens, NY 11439
United States
7189905496 (Phone)

Rensselaer Polytechnic Institute ( email )

Troy, NY 12180
United States

An Yan

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
New York, NY 10023
United States
212-636-7401 (Phone)
212-765-5573 (Fax)

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