Monetary policy, social capital, and corporate investment

  • Chad Kwon
  • Gongfu Zhang
  • Haiyan ZhouEmail author


We study the effect of monetary policy and social capital on the efficiency of corporate investments among the public US firms. We use social capital of CEOs at the peer- and non-peer levels to build proxies for the CEO networking and the effective federal funds rate and the spread between the rate and the 10-years US Treasury note as our proxies for monetary policy. We capture investment inefficiency from the residuals of Richardson (2006)‘s investment efficiency model. Our results show that both innovations in monetary policy and social capital of CEOs influence corporate investment inefficiency significantly. Stronger social ties amongst CEOs and their peers lead to greater inefficiency in investments while stronger social ties between CEOs and their non-peer directors lead to lower inefficiency in investments. The results strengthen our belief on social capital’s spillover influence on investment decision at the firm level. Our evidence indicates that CEO social ties function as another channel that affects their investment decision and that the influence of social ties also depends on the role of the other parties CEOs are affiliated with—whether they have titles of CEOs or titles of directors.


CEO networking Social capital, corporate investment Investment efficiency, monetary policy 

JEL classifications

E52 G31 G38 



We acknowledge the comments from the reviewers and participants at the European Accounting Association 2016 Annual Congress and American Accounting Association 2016 annual conference. We appreciate financial support from the Ph.D. office and the Office of Graduate Studies at the University of Texas - Rio Grande Valley.


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Copyright information

© Academy of Economics and Finance 2019

Authors and Affiliations

  1. 1.College of Business & EntrepreneurshipThe University of Texas – Rio Grande ValleyEdinburgUSA
  2. 2.School of AccountancyZhengzhou University of AeronauticsZhengzhouChina

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