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The influence of social capital on financial behaviour of small Norwegian firms

Leistad, Johan; Alnæs, Ole Helgeneseth
Master thesis
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URI
http://hdl.handle.net/11250/2483572
Date
2017
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  • Master of Science [1116]
Abstract
Social capital has been shown to influence investments and cash flow sensitivity

in other countries. Still, there are limited amount of research on this topic using

Norwegian firms. Due to high level of trust in Norway, the thesis’ implications

might differ from other foreign studies. In this master thesis, we show that

municipalities with higher levels of trust had significant effect on investment and

cash flow sensitivity to investments (CFSI) on Norwegian non-listed firms located

in that region. The accounting information is of high quality from a unique

database which has accounting data for all Norwegian private firms. We argue

that higher levels of trust increase the firms’ investments and increase CFSI. We

also provide evidence that where trust and sociability is higher, the effect on

investment and CFSI is stronger. Additionally, we suggest that civic engagement

increase the effect of trust on investments, while it has little economic robustness

on the effect of trust on CFSI.

In this master thesis, we research how social capital influence Norwegian nonlisted

firm’s investments and cash flow sensitivity to investments (hereafter

denoted by CFSI). First, we test the economic significance of the tax reform in

2006 on our models. Thereafter we test our main hypotheses, as outlined in the

first sentence above. Finally, we analysed how sociability and civic engagement

influence the marginal effect of trust on capital expenditures and cash flow

sensitivity to investments.

Firstly, trust had no statistically stronger marginal effect after 2005 for neither

investments nor CFSI. Because there are no structural difference or implications

before and after the tax reform in our models, we continued using a model without

inclusion of interaction terms with the tax reform.

Secondly, trust had a significant effect on investments, independent of the tax

reform. It has a positive influence on investments - in line with previous literature.

Trust was statistically significant in the CFSI-model, consequently having a

positive impact on CFSI. The result is rather surprising; however, some literature

support our findings. Finally, our last analysis assesses the marginal effects of trust on investments and

CFSI with different levels of sociability and civic engagement. In areas with

higher levels of sociability, the marginal effect of crime rate on investments and

CFSI decreases and the marginal effect becomes stronger. However, the effect of

sociability is only significant up to roughly the 90th- 95th percentile and 95th

percentile for sociability for investments and CFSI, respectively. Accordingly, in

areas with very high sociability, sociability is expected to have no effect on the

marginal effect of crime. Civic engagement showed to have a significant effect on

the marginal effect of crime on investments for any value during our whole

sample period (according to a 90% confidence interval), and it decreased the

marginal effect (marginal effect became more negative – hence stronger) of crime

on investments - which was negative. Additionally, civic engagement proved in

this thesis to slightly increase the marginal effect of crime on CFSI. Civic

engagement had no significant effect when levels were very high. However, its

economic significance is limited.

The results for the investment-models are pleasing and in line with expectations

and previous research papers, while the CFSI-models gave us results that were

different from our expectations, but somewhat in line with previous research.
Description
Masteroppgave(MSc) in Master of Science in Business, Business law, tax and accounting - Handelshøyskolen BI, 2017
Publisher
BI Norwegian Business School

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