Social Capital and CEO Equity Incentive Duration

In this study, we examine the impact of social capital surrounding firms’ headquarters on their CEOs’ equity incentive duration. Using a measure that explicitly accounts for the length of stock and option grants’ vesting schedules (Gopalan et al. 2014, 2021), our analyses reveal that CEOs’ equity incentive duration increases with the level of social capital in the county where their firms are headquartered. We further find that this effect is more pronounced for firms with lower institutional ownership and for firms with lower board independence. Our results are robust to a variety of additional tests and to the use of a reduced sample of firms that relocate their headquarters to different communities with differing levels of social capital. Overall, our results are consistent with the view that social capital incentivizes CEOs and firms to be long-term oriented and refrain from short-term opportunistic activities, and this lengthens CEO equity incentive duration.