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Board social capital reduces implied cost of capital for private companies but not of state-owned companies

Alex Ferreira Goncalves (Graduate Program in Administration, Universidade do Grande Rio, Rio de Janeiro, Brazil)
Luciano Rossoni (Graduate Program in Administration, Universidade do Grande Rio, Rio de Janeiro, Brazil)
Wesley Mendes-Da-Silva (Department of Corporate Finance, Sao Paulo School of Business Administration of Fundacao Getulio Vargas, Sao Paulo, Brazil)

Management Decision

ISSN: 0025-1747

Article publication date: 19 October 2018

Issue publication date: 30 October 2019

538

Abstract

Purpose

The purpose of this paper is to analyze how the type of ownership and control moderates the effect of the board social capital on the implied cost of capital. To do so, the authors analyzed the effect of the board social capital by the relational resources present in its direct and heterogenous ties, considering the predictions of analysts about the implied cost of capital.

Design/methodology/approach

The data panel comprised 137 companies listed on the Brazilian stock exchange between the years of 2002 and 2015, generating a total of 535 observations. The authors check the robustness of the results through instrumental variables and systems of equations, as well as compete for the effect of board social capital both by the board and ownership structures.

Findings

Results show that the board relational resources, both in direct and heterogeneous ties, significantly reduce the implied cost of capital for private companies, but not for state-owned companies. Board social capital reduces the cost of capital even when the results compete with the board structure and concentration of ownership, being able to mitigate the discount in the cost of capital by the presence of dominant shareholders.

Originality/value

This study uses a more theoretically and empirically comprehensive measure of board social capital than the majority of studies that use only network position indicators. So, contrasting the effect of this measure on the implied cost of capital between private and state-owned companies, the authors also demonstrate that the board social capital can mitigate the discount by ownership concentration on the implied cost of capital.

Keywords

Acknowledgements

This work was partially supported by FAPERJ (Grant No. E-26/203.238/2017).

Citation

Goncalves, A.F., Rossoni, L. and Mendes-Da-Silva, W. (2019), "Board social capital reduces implied cost of capital for private companies but not of state-owned companies", Management Decision, Vol. 57 No. 10, pp. 2672-2692. https://doi.org/10.1108/MD-11-2017-1205

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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