Effect of C-Suite Members’ Social Network Capital on Tail Risk

Abstract

The purpose of this research is to analyze the impact of the CEO’s and CFO’s social network capital on tail risk.  The CEO and CFO are the most dominant members of the top management team.  Relationships between the CEO, CFO, and a firm’s stakeholder groups (shareholders, employees, customers and suppliers, society, the environment, and government) form to create a social network that can evolve into social capital.  I tested whether the CEO and CFO, with high social capital, can reduce the probability of their company stock persistently landing in the bottom 10% of yearly returns.  Various stakeholders in the hierarchy of a social capital network can contribute to this prevention.  I found the CFO total connections variable significant in the base model, the overall model, and several subsample models.  The interesting result was that CFO and CEO total connections were significant with market risk but not idiosyncratic risk.