Managerial risk-reducing incentives and social and exchange capital |
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| Institution: | 1. Southampton Business School, University of Southampton, Southampton, SO17 1BJ, UK;2. School of Business and Economics, Loughborough University, Leicestershire, LE11 3TU, UK;3. Birmingham Business School, University of Birmingham, Birmingham, B15 2TT, UK;1. University of South Australia, Business, Adelaide, South Australia, SA, 5000, Australia;2. Universitas Mahasaraswati Denpasar, Bali, Indonesia;3. University of Pretoria, Department of Financial Management, Hatfield, 0028, South Africa;1. Laval University, 2325 Rue de L''Université, Québec City, Canada;2. University of Pisa, 10 Via Cosimo Ridolfi, 56124, Pisa, Italy;1. Queen Mary, University of London, School of Business and Management, Francis Bancroft Building, Mile End Road, London, E1 4NS, United Kingdom;2. The Open University Business School, Department for Accounting & Finance, Walton Hall, Milton Keynes, MK7 6AA, United Kingdom;1. School of Finance & China Financial Policy Research Centre, Renmin University of China, Beijing, China;2. Business School, University of Aberdeen, Edward Wright Building, Aberdeen, AB24 3QY, UK;3. Adam Smith Business School, Glasgow University, Glasgow, University Ave, G12 8QQ, UK;4. Durham University Business School, Mill Hill Lane, Durham, DH1 3LB, UK;1. School of Economics and Management, Southeast University, China;2. Xiamen National Accounting Institute, China;3. Farmer School of Business, Miami University, USA;4. Faculty of Business Administration, University of Macau, China |
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| Abstract: | This study investigates the impact of managerial risk-reducing incentives on the firm's social and exchange capital. Using CEO inside debt holdings to proxy for the incentives of risk-averse managers, we find that CEOs with more inside debt holdings are likely to invest more in building social capital, which targets broader society and potentially offers anti-risk protection advantages, to shield the value of their inside debt. However, our results further show that managerial risk-reducing incentives have no impact on firms' exchange capital, suggesting the need to recognize the difference between social and exchange capital. These findings corroborate the view that CEOs invest in social capital as a risk management strategy. Furthermore, this paper presents an understanding of the role that institutional investors play in moderating the impact of managerial risk-reducing incentives on social capital. Our results suggest that institutional investors constrain CEOs that have greater inside debt incentives from investing in social capital. However, they are still willing to increase the investment in social capital for risk management purposes when firm risk is high. |
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| Keywords: | Social capital Managerial risk-reducing incentives CEO inside debt holdings Institutional investors Exchange capital Firm risk M12 M14 G23 G32 G34 |
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