Neighborhood Social Capital and Firm Decision-Making: Evidence from Mergers and Acquisitions

61 Pages Posted: 16 Feb 2022

See all articles by Zhong Chen

Zhong Chen

King's Business School, King's College London

Yawen Shi

King's College London

Mingzhu Wang

King'S College London

Date Written: February 3, 2020

Abstract

We examine whether and how the social capital surrounding firms’ headquarters affects firm decision-making regarding mergers and acquisitions (M&As). We document that M&A deals made by firms located in counties with higher levels of social capital are associated with superior acquirer announcement returns. We further show that such improvements originate from social capital’s monitoring role, which prevents self-serving deals but not managerial incompetence or overconfidence. In addition, we find that the positive effect of social capital on firm decision-making quality lasts over the long term. Our results are robust to various endogeneity and robustness checks including instrumental variable estimations, high-dimensional fixed effects, extra controls, and alternative measures of social capital.

Suggested Citation

Chen, Zhong and Shi, Yawen and Wang, Mingzhu, Neighborhood Social Capital and Firm Decision-Making: Evidence from Mergers and Acquisitions (February 3, 2020). Available at SSRN: https://ssrn.com/abstract=4033879 or http://dx.doi.org/10.2139/ssrn.4033879

Zhong Chen (Contact Author)

King's Business School, King's College London ( email )

Bush House
London, WC2B 4BG
United Kingdom

Yawen Shi

King's College London ( email )

Strand
London, England WC2R 2LS
United Kingdom

Mingzhu Wang

King'S College London ( email )

30 Aldwych
Franklin-Wilkins Building
London, WC2B 4BG
United Kingdom

HOME PAGE: http://https://kclpure.kcl.ac.uk/portal/mingzhu.wang.html

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