Real Options and CEO Social Connections: The Role of Financial Flexibility

42 Pages Posted: 27 Nov 2023

See all articles by Md Nazmul Hasan Bhuyan

Md Nazmul Hasan Bhuyan

North Carolina A&T State University

Luis García-Feijóo

Florida Atlantic University - Department of Finance

Tijana Rajkovic

San Jose State University

Date Written: August 6, 2023

Abstract

We examine the impact of CEO social connections on the value relevance of real options. Consistent with the benefits of information transmission, reputation, and trust embedded in social connections, we find that CEO social connections act as real option facilitator through improved financial flexibility, alleviating financial constraints. The effect of CEO social connections is stronger for firms with high growth opportunities and when the CEO has a longer-term career horizon and greater ability. CEO social connections have a super-additive impact on real options value. Overall, social connections influence the value relevance of real options, a novel finding in the literature.

Keywords: Real Options, Social Connections, Financial Constraints, Growth Opportunities, CEO Skills

JEL Classification: F23, G32, Z13

Suggested Citation

Bhuyan, Md Nazmul Hasan and Garcia-Feijoo, Luis and Rajkovic, Tijana, Real Options and CEO Social Connections: The Role of Financial Flexibility (August 6, 2023). Available at SSRN: https://ssrn.com/abstract=4615562 or http://dx.doi.org/10.2139/ssrn.4615562

Md Nazmul Hasan Bhuyan

North Carolina A&T State University ( email )

Greensboro, NC 27411
United States

Luis Garcia-Feijoo (Contact Author)

Florida Atlantic University - Department of Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States
954-236-1239 (Phone)

Tijana Rajkovic

San Jose State University ( email )

One Washington Square BT851
San Jose, CA 95192
United States
(408) 924-3467 (Phone)

HOME PAGE: http://www.sjsu.edu/people/tijana.rajkovic/

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