We investigate the relationship between county-level social capital in the U.S. and asymmetric earnings timeliness (accounting conservatism). We measure social capital by the strength of civic norms and the density of social networks in a community. We find that firms headquartered in regions with higher social capital have earnings that reflect bad news more quickly than good news. Two potential mechanisms driving this connection are evident in our findings. First, the positive link between social capital and asymmetric earnings timeliness is more pronounced in firms with weaker external oversight, suggesting that social capital compensates for weaknesses in these mechanisms by discouraging managers from delaying the recognition of bad news. Second, we illustrate that firms in high social capital regions are more likely to recruit senior executives with higher asymmetric earnings timeliness coefficients. This result implies a preference for managers who adopt more conservative accounting practices. We find similar results using an international sample of firms from 21 countries. Our findings offer new insights into how local social norms influence corporate financial reporting.

In this paper, we use granular trading data from Taiwan between 2012 and 2016 to examine how local social capital influences retail investor behavior during corporate social irresponsibility (CSIR) events. Therefore, we are responding to longstanding calls in the international finance literature to explore investor behavior in non-US markets with distinct institutional and cultural characteristics. We find that investors residing in cities with higher social capital are less likely to purchase underpriced stocks following the announcements of negative events despite the potential for positive abnormal returns. This norm-driven restraint reflects a form of socially responsible investing motivated by community-based values rather than economic rationality. By documenting this behavior in an East Asian market, we extend the external validity of social norm theories developed in Western settings and contribute to a more nuanced understanding of how localized social preferences can influence asset pricing and capital allocation in a global context.

We study the corporate-loan pricing decisions of a major, systemic bank during the Greek financial crisis. A unique aspect of our data set is that we observe both the actual interest rate and the “break-even rate” (BE rate) of each loan, as computed by the bank’s own loan-pricing department (in effect, the loan’s marginal cost). We document that low-BE-rate (safer) borrowers are charged significant markups, whereas high-BE-rate (riskier) borrowers are charged smaller and even negative markups. We rationalize this de facto cross-subsidization through the lens of a dynamic model featuring depressed collateral values, impaired capital-market access, and limit pricing.