Social capital and capital allocation efficiency

Based on the social norms and structural theories of social capital, this study examines the relationship between community social capital and the firms’ capital allocation efficiency. We hypothesize and find that the community social capital of a firm's headquarter area has a negative and statistically significant impact on its capital allocation inefficiency, which is robust to alternative proxies for community social capital and capital allocation inefficiency, propensity score matching and instrumental variable regressions. In addition, we find that the effect of community social capital is more pronounced for firms with poor internal ethical culture and weak network connections to outside executives and directors, implying that community social capital becomes important in these situations. This finding links prior social norms and networks literature to capital allocation studies in that the norms and networks components of community social capital discipline self-interested managers’ behavior and reduce information asymmetry-two channels of capital allocation efficiency. Overall, community social capital works as a compensatory monitoring and information transfer mechanism and improves the firms’ capital allocation efficiency.     

Wind of change brought by COVID-19: Exploring the response and the new normal from the perspectives of Indian flexpatriates

Drawing from the positive organizational change theory, this paper aims to explore how Indian flexpatriates responded to the change brought by the pandemic of COVID-19 and what is the new normal according to them. Thematic analysis of 19 in-depth interviews with flexpatriates from the IT industry revealed four explicit phases of change process – reflection, communication, collaboration, and transformation. Further, the analysis brought out four tenets of the new normal. First, it is time to blend physical and virtual work; second, the “personal” touch of Indians in international assignments is irreplaceable; third, working from home amidst the entire household being housebound is the new normal; and last, international travel will resume soon with some changed protocols. This is the first qualitative study combining the issue of global talent management with Indian flexpatriates vis-à-vis the impact of COVID-19, the findings of which expand the positive organizational change theory and have important implications.     

Market-implied ratings and their divergence from credit ratings

In this article, we investigate the divergence between credit ratings (CRs) and Moody's market-implied ratings (MIRs). Our evidence shows that rating gaps provide incremental information to the market regarding issuers' default risk over CRs alone in the short horizon and outperform CRs over extended horizons. The predictive ability of rating gaps is greater for more opaque and volatile issuers. Such predictability was more pronounced during the 2008 financial crisis but weakened in the post–Dodd–Frank Act period. This finding is consistent with credit rating agencies’ efforts to improve their performance when facing regulatory pressure. Moreover, our analysis identifies rating-gap signals that do (do not) lead to subsequent Moody's actions to place issuers on negative outlook and watchlists. We find that negative signals from MIR gaps have a real economic impact on issuers’ fundamentals such as profitability, leverage, investment, and default risk, thus supporting the recovery-efforts hypothesis.