Social Capital and Debt Concentration

54 Pages Posted: 12 Feb 2024

See all articles by Xiaoli Hu

Xiaoli Hu

City University of Hong Kong

Jiarui Tong

Xi'an Jiaotong-Liverpool University (XJTLU) - International Business School Suzhou

Yangxin Yu

City University of Hong Kong

Liu Zheng

City University of Hong Kong

Date Written: December 15, 2022

Abstract

This study examines how social capital affects firms’ choices of debt concentration. We argue that creditors perceive social capital as providing environmental pressure that constrains opportunistic firm behavior and facilitates coordination and cooperation. Creditors are more likely to perceive that the default resolution plans proposed by managers of firms headquartered in high-social-capital U.S. counties reflect collective interests instead of narrow self-interests, which lowers coordination failures and, hence, lowers bankruptcy costs associated with a dispersed debt structure. Consistent with this prediction, we find that firms in high social capital countries exploit a more dispersed debt structure. This effect is more pronounced in firms with high bankruptcy costs and information asymmetry. We also find that firms headquartered in counties with high social capital are more likely to agree on a pre- arrangement before filing a bankruptcy case, supporting the premise that high social capital facilitates creditor coordination.

Keywords: social capital, debt structure, debt concentration, creditor coordination, bankruptcy

JEL Classification: M14,G32,G33.

Suggested Citation

Hu, Xiaoli and Tong, Jiarui and Yu, Yangxin and Zheng, Liu, Social Capital and Debt Concentration (December 15, 2022). Available at SSRN: https://ssrn.com/abstract=4702161 or http://dx.doi.org/10.2139/ssrn.4702161

Xiaoli Hu

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
+852 34422933 (Phone)

Jiarui Tong (Contact Author)

Xi'an Jiaotong-Liverpool University (XJTLU) - International Business School Suzhou ( email )

111 Ren'ai Road
Suzhou Industrial Park
Suzhou, Jiangsu 215123
China

Yangxin Yu

City University of Hong Kong ( email )

Hong Kong

Liu Zheng

City University of Hong Kong ( email )

Kowloon Tong
Hong Kong

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