Board social capital in an emerging market: Do directors’ connections affect corporate risk-taking?
Using a sample of 112 Russian firms, we examine the influence of the board of directors' social capital on corporate risk-taking. We explore three sources of social capital: professional, political, and educational connections of directors. These measures of social capital are positively related to risk-taking. Boards with directors who are busier, more politically connected, in more central positions, and graduated from any university in Moscow or St. Petersburg take more risk. In addition, the number of directorships and corporate risk-taking have a nonlinear relation. Serving on several boards at the same time is thus positively related to corporate risk-taking at low directorship levels. We also find that board social capital and directors' characteristics play a significantly positive role only at companies with relatively low levels of corporate risk-taking, such that the board's characteristics are not relevant in high-risk situations.