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 contributes to firm performance. Using novel, individual-level network data, we measure a firm’s social capital derived from employees’ connections with external stakeholders. Our directed network data allow for differentiating those connections that know the employee and those that the employee knows. Results show that firms with more employee social capital perform better; the positive effect stems primarily from employees known by others. We provide causal evidence exploiting the enactment of a government regulation that imparted a negative shock to networking with specific sectors and provide evidence on the mechanisms.

Keywords: Social capital; Social networks; Labor economics; Business performance

JEL Classification: D22, G30, L14