The Triumph of Locality in Troubled Times: Local CEOS, Social Capital, and Credit Ratings Under Uncertainty

1 Pages Posted: 4 May 2021 Last revised: 8 Feb 2022

See all articles by Samer Adra

Samer Adra

University of Sheffield

Yang Gao

University of Birmingham

Jing-Ming Kuo

University of Birmingham - Birmingham Business School

Date Written: April 28, 2021

Abstract

We emphasize the relevance of the management team's local knowledge in the presence of business uncertainty. Exploiting a hand-collected dataset covering CEOs' birthplace, we provide robust evidence that firms with local CEOs are more likely to have higher credit ratings and preserve their debt ratings in the presence of high business uncertainty. Firms with local CEOs are significantly more likely to neutralize the exogenous uncertainty shocks, partly through a more efficient use of social capital. The effects are notably relevant in the case of small and undiversified firms as well as those firms with more financial constraints or in the industries with higher market competition. Overall, our result highlight the usefulness of local knowledge.

Keywords: Local CEOs; Credit ratings; Business uncertainty; Social capital; Financial constraints; Industry competition

Suggested Citation

Adra, Samer and Gao, Yang and Kuo, Jing-Ming, The Triumph of Locality in Troubled Times: Local CEOS, Social Capital, and Credit Ratings Under Uncertainty (April 28, 2021). Available at SSRN: https://ssrn.com/abstract=3835796 or http://dx.doi.org/10.2139/ssrn.3835796

Samer Adra

University of Sheffield ( email )

17 Mappin Street
Sheffield, Sheffield S1 4DT
United Kingdom

Yang Gao

University of Birmingham ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Jing-Ming Kuo (Contact Author)

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
University House
Birmingham, Birmingham B15 2TT
United Kingdom

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