CEO social network, capital structure complexity and firm performance

Abstract

PurposeThe paper aims to examine the effect of CEOs' social networks on capital structure complexity (CSC) and firm performance.Design/methodology/approachOrdinary Least Squares regression (OLS) and Generalized method of moments (GMM) regression results estimate the effect of CEOs' (Chief executive officer) social networks on capital structure complexity and firm performance. The number of sources of capital (NSC) and concentration ratio estimate the capital structure complexity for the sample firms.FindingsThe results show that CEOs' social networks significantly influence CSC. We suggest that the CEOs' social networks encourage them to make more complex capital structure decisions. This behavior deteriorates firm performance.Research limitations/implicationsThere is a lack of systematic conceptual reason for measuring CEO social network. Future research should use other measures of the social network to estimate the relation of the CEO's social network with CSC and firm performance.Practical implicationsThe findings support the managerial power approach and social network theory that the observable characteristics of CEOs influence CSC. The results are robust for an alternative explanation.Originality/valueBy investigating the impact of the influence of CEOs' social networks on CSC and performance, the authors extend research on strategic leadership and capital structure and firm performance.