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Review of Financial Studies Vol. 35 No. 6 2022

Social Proximity to Capital: Implications for Investors and Firms

Theresa Kuchler1; Yan Li2; Lin Peng3; Johannes Stroebel1; Dexin Zhou3

1 Stern School of Business, New York University, NBER, and CEPR · 2 School of Accounting, Southwestern University of Finance and Economics · 3 Zicklin School of Business Baruch College

Abstract

We show that institutional investors are more likely to invest in firms from regions to which they have stronger social ties but find no evidence that these investments earn a differential return. Firms in regions with stronger social ties to locations with many institutional investors have higher valuations and liquidity. These effects are largest for small firms with little analyst coverage, suggesting that the investors’ behavior is explained by their increased awareness of firms in socially proximate locations. Our results highlight that the social structure of regions affects firms’ access to capital and contributes to geographic differences in economic outcomes.

DOI
10.1093/rfs/hhab111
Volume
35
Issue
6
Pages
2743-2789
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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