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

Abstract

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.