earticle

영어

This paper examines whether social capital’s monitoring role intensifies during post-terrorism periods by focusing on firms’ stock price crash risk, which is caused by managers’ bad news hoarding. Using U.S. public firms, county-level social capital index, and terrorist attacks, we find that social capital surrounding corporate headquarters significantly reduces stock price crash risk during post-terrorism periods. The results are robust to propensity score matching and instrument variable regressions, and a battery of sensitivity tests. Our study suggests that stakeholders’ willingness (that is intensified by terrorism) to monitor managers’ opportunistic behavior implements through social capital, also consistent with the literature that social capital particularly matters in certain periods, such as traumatic events. Furthermore, the monitoring role of social capital under terrorism is significant for firms with poor internal monitoring, more institutional investors, less entrenched managers, CEOs preferring bad news hoarding, and accompanied by improvement of analysts’ forecasts, suggesting that the impact of external governance may differ by firms’ governance characteristics. While terrorism brings serious damage and economic costs, our study shows that it gives rise to the increased role of social capital, suggesting a novel perspective that terrorism’s unexpected socio-psychological outcome, being nonfinancial social threats, leads to positive corporate behaviors by stimulating stakeholders’ willingness to monitor firms.