| 25.06.2020

Doctoral thesis: Social capital reduces managerial opportunism and improves corporate governance in public companies

New research argues that social capital, as measured by civic norms and density of associational networks, reduces corporate managers’ tendencies to hide bad news. This results in higher accounting conservatism, which is a cautious approach that admits lower profits along with greater losses. Social capital also positively influences boardroom gender diversity and corporate governance.

In his doctoral dissertation, entitled, “Essays on the Role of Social Networks and Social Capital in Accounting and Finance”, Mansoor Afzali studies how community-level social capital in the United States influences accounting conservatism, boardroom gender diversity, and corporate governance as well as how insider social networks in Europe matter in information dissemination to the market.

– I found that social capital plays a vital role in who is hired as a manager. Firms headquartered in high social capital regions in the United States, such as states located near the Canadian border, prefer hiring managers who have a history of higher accounting conservatism, says Afzali. Consequently, firms located in high social capital regions have higher accounting conservatism than firms located in southern states with low social capital, he adds.

Higher levels of trust and better oversight mechanisms in high social capital regions enables the society to fight inequalities. Afzali also examines how social capital influences boardroom gender diversity.

– My results show that firms headquartered in high social capital regions in the United States, are more likely to have female directors than those firms that are located in regions with low social capital. Better oversight and social pressure also result in improved corporate governance in the form of board monitoring.

Another key social construct, social networks, can also be beneficial in almost every economic decision. According to Afzali, insiders in Europe with superior networks have access to several channels of information and resource exchange.

- When these networked insiders trade, they disseminate more information to the market than insiders with inferior networks. The level of trust also plays an important role – markets in countries with higher levels of trust perceive trades of networked insiders as more informative and less opportunistic, Afzali concludes.

You can read the whole doctoral dissertation here.

More information:

Mansoor Afzali
Email: mansoor.afzali@hanken.fi
Phone: +358 44 240 2501

Mansoor Afzali defends his dissertation on Tuesday, June 30th, 2020 at 12 p.m. The subject is Accounting.

Opponent: Sami Vähämaa, University of Vaasa
Custos: Professor Minna Martikainen

The doctoral defence will be organized remotely.
Join the Teams-meeting here. The link opens on June 30th, at 12 p.m.