Impact of Board Members’ Social Capital on the Resilience of Public Companies to Exogenous Shocks

The objective of this study is to estimate the impact of board members’ social capital on firms’ market-based metrics of resilience to exogenous shocks. The social capital of directors was measured by their professional, political, and international connections. Firms’ resilience was evaluated based on their ability to resist and recover from the impact of shocks, as determined by stock market data. The data covers the period from 2007 to 2020 for over 200 Russian companies whose shares were included in the calculation of the Moscow Exchange Broad Market Index. During this period, three exogenous shocks occurred: the global financial crisis of 2008–2009, commodity price shock and sanctions in 2014–2015, and the COVID-19 pandemic in 2020. The system generalized method of moments is used to estimate the effect of directors’ connections on theability to mitigate shocks, while OLS with robust standard errors is used to reveal the influence of directors’ connections on firms’ ability to recover from shocks. The results indicate that professional connections moderated the negative impact on firms’ resistance to shocks and improved recovery speed during the global financial crisis. However, this type of connection reduced stock recovery speed after the COVID-19 crisis. Political and international connections have different effects on market-based metrics of firm resilience. It is possible that shocks of different nature require firms to leverage various forms of social capital from their directors in order to mitigate the negative effects of such shocks.