It’s Not Who You Know — It’s Who Knows You: Employee Social Capital and Firm Performance

Abstract

We show that the social capital embedded in employees’ networks enhances firm performance and provide evidence on the mechanism. Using novel data from a professional networking app, we measure a firm’s social capital derived from employees’ connections with external stakeholders. The directed nature of connections allows for identifying whether one party in a connection is more valued. Results show that firms with more employee social capital perform better; the positive effect stems primarily from employees being valued by others. We provide causal evidence exploiting the enactment of a government regulation that imparted a negative shock to networking with specific sectors.

Keywords: Social finance; Social capital; Social networks; Directed networks; Information sharing

JEL Classification: G30, G32, L14