WEATHERING THE STORM: SOCIAL CAPITAL REPAIR AND PERFORMANCE IMPROVEMENTS AFTER FINANCIAL FRAUD

Restricted (Penn State Only)
Author:
Park, Chuljin Albert
Graduate Program:
Business Administration
Degree:
Doctor of Philosophy
Document Type:
Dissertation
Date of Defense:
February 15, 2017
Committee Members:
  • Wenpin Tsai, Dissertation Advisor
  • Wenpin Tsai, Committee Chair
  • Srikanth Paruchuri, Committee Member
  • Razvan Lungeanu, Committee Member
  • Darrell Steffensmeier, Outside Member
  • Vilmos F. Misangyi, Committee Member
Keywords:
  • social networks
  • financial fraud
  • director interlocks
  • board of directors
  • organizational failure
  • organizational recovery
Abstract:
This study seeks to investigate how firms can better recover from the aftermath of fraud, focusing on the interfirm social networks of firms. Interfirm social networks form an important part of firms’ ability to adapt and survive in changing environment, but are prone to damage in situations such as financial fraud. While existing research has provided ample evidence on how why financial frauds are damaging to the social networks, research had been limited on how firms can recover afterwards. The first study in this dissertation focuses on the repairing of the network itself. I investigate the factors that can potentially expedite the network repair process, enabling the firm to regain its network size more quickly. More specifically, the effects of CEO replacement and strategic change along with network closure prior to fraud are tested. The results indicate a partial support for the hypotheses, showing significant effects of the interaction between CEO replacement and network closure. I shift my focus to the more specific network changes in the second study, testing the performance implications of such changes. Overall network compositional changes showed significant concave curvilinear effects, indicating that a balanced change is important in improving performance after financial fraud. Specific types of tie changes such as losing negative reputation ties and gaining high-visibility ties also showed significant impact on subsequent performance, providing partial support for the proposed hypotheses. Through this dissertation, I aimed to advance the research on financial fraud and social network theory. Understanding how interfirm social networks change and develop under stressful situations, and how it can influence subsequent firm outcomes, will provide us with a better picture of how firms survive after reputation damaging events.