The Influence of Customers' Social Capital on Corporate Financial Decisions: Perspective of the Supply Chain

基於供應鏈視角的客戶社會資本對公司財務決策影響研究

Student thesis: Doctoral Thesis

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Author(s)

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Detail(s)

Awarding Institution
Supervisors/Advisors
  • Haibin WU (Supervisor)
  • Gaoliang TIAN (External person) (Supervisor)
  • Gaoliang TIAN (External person) (External Supervisor)
Award date14 Jul 2020

Abstract

Social capital is an environmental factor that emphasizes the sprits of cooperation. In other words, social capital reflects firms’ willingness to cooperate with others and how much do they care about the collective interests. This social factor has received growing attention in accounting and finance literature in recent years, and substantial evidence has been documented that social capital can effectively constrain a firm’s opportunistic behaviors. Since firms can’t avoid interactions with other parties in daily operations, their sprits of cooperation will not only be reflected into their business outcomes, but also have strong influence on the parties who have interactions with them. The purpose of this study is to test whether a firm’s social capital can influence their stakeholders’ financial decisions. More specifically, I investigate the influence of customers’ social along the supply chain, a setting where cooperation is especially emphasized, on corporate financial decisions.

Based on the transaction cost theory, the incompleteness of contracts makes both parties in the supply chain have to worry about each other’s post-contractual opportunistic behaviors, which also introduce concerns with respect to supply chain safety. This study investigates whether social capital can alleviate such concerns and examines the influence of customer firm’s social capital on corporate financial decisions. The regression results revel that firms tend to adopt more aggressive financial decisions, such as holding less cash or borrowing more debts, when make transactions with high-social-capital customers. They also incline to conduct more relationship-specific investments. These results are robust to the inclusion of firm’s own social capital, a multitude of firm-level control variables, as well as customers’ characteristics. In addition, this study further explores whether the influence of customers’ social capital is moderated by certain corporate characteristics. I find that the aforementioned associations are particularly pronounced in small firms or firms with weak bargaining positions. Findings in this study are quite robust to a battery of sensitivity tests including using alterative measures of social capital or alternative estimation methods. The IV estimations help me build up the casualty between customers’ social capital and corporate financial decisions.

Compared with the existing literature, this study has contributions in these areas:
Firstly, from the perspective of supply chain, this study can extend the social capital literature by focusing its economic consequence out of the focal firm. Although a large number of studies have documented that social capital can shape corporate behaviors, their attention only focuses on firms themselves. There’s a significant void in investigating the influence of corporate social capital beyond the focal firm, which is especially interesting since social capital emphasizes the sprits of cooperation. This study can fill this gap by examining the influence of a firm’s social capital on its supply chain partners, i.e. I investigate whether customer firms’ social capital can influence corporate financial decisions. This perspective not only perfectly fits the definition of social capital that emphasizes the sprits of cooperation, but also extends the influence social capital to corporate stakeholders. Therefore, the research conclusions in this paper can strongly promote the development of social capital literature and inspire subsequent researches in this field.

Secondly, based on the precautionary motivation theory, this study sheds lights on the influence of the disruption risks stemming from the supply chain on corporate financing polices. Prior studies document that firms tend to strategically incorporate risks stemming from their operating environments into their financing decisions, such as product market competition, technology reforms and the threat of business secrete leakage, etc. This study finds that customers’ social capital will place strong influence on corporate financing decisions through the mitigated concerns of supply chain safety. Firms tend to hold more cash or borrow less debts when keep transactions with poorsocial-capital customers. Moreover, the influence of customers’ social capital is more pronounced when firms are small or in weak bargaining positions. Broadly speaking, this study can add to the precautionary literature by empirically identifying a new source of risk that could strategically influence corporate financing decisions, i.e. the risk stemming from corporate supply chain which is caused by customers’ opportunism.

Finally, by examining the influence of customers’ social capital on corporate
relationship-specific investments, this study highlights the effectiveness of social capital in mitigating the hold-up problems. The hold-up problem is a topic that has been discussed for a long time in transaction cost theory, which can be traced back to the argument about the boundary of the firm. The transaction cost theory argues that the incompleteness of contracts makes both parties in the supply chain have to worry about each other’s post-contractual opportunistic behaviors, which in turn, deters the relationship-specific investments. In this study, I pay attention to an informal mechanism in governing the supply chain, i.e. social capital, and find that customers’ social capital can effectively reduce a firm’s concern about the hold-up problems and elicit its relationship specific investments. My study can add to this stream of literature by shedding lights on a new mechanism in dealing with the long-debated problem.

    Research areas

  • Financial decisions, Social capital, Supply chain, Incomplete contract, Relationship-Specific investments