It’s Not Who You Know—It’s Who Knows You: Employee Social Capital and Firm Performance

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2021
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Choi, Lyungmae
Cho, Duckki
Hertzel, Michael
Wang, Jessie Jiaxu
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We show that the social capital embedded in employees’ networks contributes to firm value and provide evidence on the mechanisms. Using novel, individual-level network data, we measure a firm’s social capital derived from employees’ connections with external stakeholders. The directed nature of connections allows for identifying whether one party in a connection is a more valued contact. Results show that firms with more employee social capital perform better; the positive effect stems primarily from employees being valued by others. We provide causal evidence exploiting the enactment of a government regulation that imparted a negative shock to networking with specific sectors.
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Social capital, Firm Performance, Trust, Social networks, Labor
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