The Impact Mechanism of <scp>CEO</scp> Social Capital on Corporate Governance

ABSTRACT Corporate governance in emerging markets often faces challenges due to inadequate institutional enforcement, making informal mechanisms essential supplements. This study examines how CEO social capital serves as an adaptive relational resource that influences corporate governance. Using a comprehensive panel dataset of Chinese A‐share listed firms from 2008 to 2022, the paper constructs multidimensional indices of CEO social capital and corporate governance. By employing a multi‐way fixed effects model along with instrumental variable and propensity score matching methods, the analysis addresses endogeneity concerns. Empirical findings indicate that CEO social capital significantly enhances corporate governance, with consistent effects across various model specifications. Mechanism analyses reveal that CEO social capital improves corporate governance by reducing agency costs, alleviating financing constraints and lowering the cost of equity. Further moderation analyses suggest that financial slack and risk‐taking amplify the governance‐enhancing effect of CEO social capital, while CEO turnover diminishes it. Heterogeneity tests show that the positive effect is more pronounced in non‐state‐owned and non‐high‐tech firms, while it diminishes in state‐owned and high‐tech enterprises. Theoretically, this study reconceptualises CEO social capital from an individual attribute to an embedded governance resource, advancing research on institutional evolution and cultural embeddedness. Practically, the findings underscore the importance of social capital in executive selection and incentive structures, inform investor assessments of governance quality and provide policy insights for integrating formal and informal mechanisms in institutional design to promote sustainable governance. Overall, this paper confirms the critical role of CEO social capital in corporate governance and outlines its contextual boundaries, offering new theoretical and practical pathways for understanding institutional embeddedness and sustainable development in emerging markets.