Accounting Webinar (2020-13)

Topic: Divisional Managers' External Social Connections and Capital Investment

Speaker: Guochang Zhang，HKU Business School

Time: Wednesday, Oct 21st, 10:00-11:30 a.m

Place: Microsoft Teams

Abstract:

Information is a vital resource enabling firms to make efficient capital investment.We establish evidence of a causal relation between information and capital investment at the divisional level within a multi-divisional firm, using external social connections of division managers (DM) as an information source. We find that DMs who are socially connected with the CEOs of other firms in the same industries receive more capital investment than those who do not have such connections. The effect of external social connections is more pronounced (i) when the information source is of higher quality, proxied by external firms connected with the DM displaying superior performance or their CEOs having had a longer tenure on the post, (ii) when the industry environment in which the division operates is more uncertain, and (iii) when the DM’s own firm’s CEO is less informed about the division. The effect is further enhanced where the DM serves a more influential role within the firm. Further analysis indicates that the increased investment level resulting from external social connections is accompanied by improvements in investment efficiency and subsequent performance. Our results are robust to controlling for the DM’s inherent ability, the DM’s social ties with the own firm’s CEO, and the external social connections of the own firm’s CEO.

Introduction:

Guochang Zhang is the Chung Hon-Dak Professor in Accounting at the University of Hong Kong. He previously held academic positions at the Hong Kong University of Science and Technology and The University of Waterloo, Canada. He received a Bachelor degree (Engineering) from Shanghai Jiaotong University, and an MSc (Accounting) and a PhD (Finance) from the University of British Columbia. He has published papers in top academic journals including The Accounting Review, Journal of Accounting and Economics, Journal of Accounting Research, Contemporary Accounting Research, Review of Accounting Studies, and Management Science. His monograph “Accounting Information and Equity Valuation: Theory, Evidence, and Applications” has received the attention of academic researchers and investment professionals, and has been used as teaching material for doctoral and master programs and executive training. He serves as an Associate Editor of European Accounting Review, and a member of the Financial Reporting Standards Committee of the Hong Kong Institute of Certified Public Accountants.

//www.fbe.hku.hk/people/academic/guochang-zhang

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