The ties that bind: Social capital and perceived competition during financial crisis

Abstract

Social capital provides various benefits for organizations. However, it may serve as constraints when strong networks prevent managers from making a timely response to emerging risks. Using a sample of U.S. listed firms around the financial crisis period, we predict and find that social capital reduces a level of perceived competition by managers. Additional analyses suggest that the incomplete perception of competition leads to low investment efficiency and poor firm perfor-mance during the crisis. Collectively, our study shows that over-embedded CEOs in social re-lationships may fail to take proper actions against signals of market downturns, leading to poor future performance.