A study by a Walton College researcher and his colleagues says well-connected chief financial officers obtain loans for their companies with more favorable terms and conditions as compared to those who have less “social capital.”
“CFOs are the most important decision-makers on the borrower side,” said Tomas Jandik, finance professor in the Sam M. Walton College of Business. “These folks are responsible for negotiating loans on behalf of their employer. We found that those CFOs who have higher social capital – as assessed by their connectedness among all business professionals – are deemed more trustworthy, influential and powerful. This connectedness helped them achieve better contractual outcomes for their firms.”
Jandik and colleagues Kathy Fogel, a private economist, and William McCumber, finance professor at Louisiana Tech University, used BoardEx, a database of biographical information about corporate board members and senior executives, to track social links based on shared experiences like work and education to determine the social connectedness of leaders within a network of more than 400,000 individuals at public and private U.S. companies.