Both formal and informal institutions affect economic behavior in important ways, as economist Douglass C. North explained in his 1993 Nobel Prize lecture. Formal institutions include laws and regulations, and informal institutions include culture and norms. In a recent study, we explore the effect of social capital, an informal institution, on corporate innovation.

Social capital consists essentially of the shared values and social networks that create trust, enhance cooperation, and facilitate transactions within a given community. In a newly accepted paper at Journal of Corporate Finance, we provide evidence that social capital can also facilitate contracting for innovation within a … Read more