Firm Social Network, Information Transfer and Information Environmen

I investigate whether or not a firm's social network size (also known as social capital) impacts the quality of its information environment. Following social capital theory, I posit three potential channels that help bring an informational advantage to well-connected firms. First, well-connected firms are likely to have timely access to a broader set of information that affords them the opportunity to disclose this information. Second, a social network fosters trust among social peers, which promotes the transfer of more accurate information within that network. Third, well-connected executives and directors have greater reputational capital at stake, which may encourage them to provide accurate information to the market. I provide evidence that well-connected firms have higher quality information environments.;I further document that the beneficial impact of the firm's social network size on the quality of the firm's information environment is higher for complex firms. I also find that the beneficial effect of the firm's social ties on the quality of the firm's information environment is greater when the firm's connections are in the same industry or are top executives or are industry leaders or are financiers in the capital markets.;My study extends existing social network literature by investigating whether firm's social connections to outside executives and directors impact the quality of the firm's information environment. My paper focuses on the networking skills of the executives and directors and extends the literature on how executives' and directors' personal characteristics are important. Additionally, I respond to the call by Engelberg et al. (2013) to identify the mechanism by which a CEO's network creates value to the firm and well-connected CEOs get paid higher compensation. This study also contributes to a growing debate in social network literature between social capital theory and agency theory. Finally, my study is important to the regulators and standard setters as they can provide further evidence on the impact of non-financial information on the information quality surrounding the firm.