Essays on the Role of Social Networks and Social Capital in Accounting and Finance
Social capital, as measured by the strength of civic norms and density of social networks in the community, is positively associated with accounting conservatism. Social capital surrounding corporate headquarters positively influences corporate behavior and the firms located in such areas prefer hiring managers with proven accounting conservatism record. Consequently, the managerial tendency to hide bad news and to conduct asset write offs is reduced. This social capital induced accounting conservatism ultimately improves the information environment of the firm: the stock's liquidity is higher, its opaqueness and its idiosyncratic volatility is lower, and its price delay is smaller.