Do friendly boards impact the value of real options?

Bhuyan, Md Nazmul Hasan; Okafor, Collins E.; Cho, Eunho

doi:10.1016/j.jbef.2021.100623

Cited by 6 publications

(2 citation statements)

References 44 publications

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“…First, consistent with the social norms theory (Kohlberg, 1984), we argue that the norms component of community social capital disciplines managerial behaviors by encouraging honest dealing and imposing several disciplinary instruments for dishonest dealing within the social structure (Bhuyan et al, 2022;Gupta et al, 2018;Jha and Chen, 2015;McMillan and Woodruff, 2000). These disciplinary instruments include guilt, social isolation, gossip, condescending stares and the loss of reputation and friends in the community.…”

Section: Introductionsupporting

confidence: 71%

Social capital and capital allocation efficiency

Bhandari

Bhuyan

2022

Business Fin & Account

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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.

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Section: Introductionsupporting

confidence: 71%

Social capital and capital allocation efficiency

Bhandari

Bhuyan

2022

Business Fin & Account

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“…Last, we contribute to the literature by examining the factors influencing managerial risk aversion (Bhuyan et al ., 2022; Ferris et al ., 2017; Malmendier and Tate, 2005). Prior literature shows that CEO social connections and CEO overconfidence, among others, affect the degree of CEO risk aversion.…”

Section: Introductionmentioning

confidence: 99%

CEO marital status and capital allocation efficiency

Hossain

Bhuyan

2023

IJMF

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PurposeThe extant literature provides evidence that single CEOs are less risk-averse. Building on the theory of risk aversion, the authors argue that the risk aversion trait arising from CEO’s marital status partially explains capital allocation efficiency. The paper aims to examine the association between CEO marital status and capital allocation efficiency.Design/methodology/approachThe primary sample includes 9,671 observations from 1,264 US firms. The authors apply multivariate regression and a series of endogeneity tests to examine the association between CEO marital status and capital allocation efficiency.FindingsSingle-CEO firms have higher capital allocation inefficiency than those with married CEOs. The findings continue to hold after a series of endogeneity tests such as propensity score matching, change analysis and instrumental variable regression analysis and are robust to alternative proxies for capital allocation inefficiency. The capital allocation inefficiency in single-CEO firms arises from overinvestment but not underinvestment, and corporate risk-taking channels the effect.Research limitations/implicationsThe study is limited to the effect of CEO marital status, not CEO marital quality.Practical implicationsThe findings imply that besides information asymmetry and agency conflicts, CEO marital status should receive special attention for capital allocation efficiency. Also, marital status influences the CEOs’ commitment to the general good of society, affecting the potential conflict of interest with different stakeholders from inefficient capital allocation.Originality/valueThis study extends corporate finance literature on CEO marital status by providing novel evidence on the effect of single CEOs on capital allocation efficiency. The authors conclude that CEOs’ personality traits, such as marital status, matter in corporate policy choices.

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