Network board capital and performance of international companies
DOI:
https://doi.org/10.21638/spbu05.2023.203Abstract
The paper estimates the influence of links between boards of directors on corporate performance at the world level in the framework of network analysis. The vast majority of empirical papers on the topic analyses the case of isolated countries. The current study estimates the effect of networking in large companies at the international level. It enables a more correct construction of the network between directors and eliminates the influence of national specificity. We construct an international network of boards and calculate three alternative centrality metrics: degree, closeness, and betweenness. Then the econometric analysis is applied to estimate the effect of centrality on performance. We consider two dependent variables which are
responsible for the long-term and short-term effects (correspondingly, M/B ratio and ROE). The effect of boards’ networking on firm outcomes is found to be positive on average for large global companies. This resultis robust to used centrality metrics and financial indicators.The influence of networking is found to be similar in the short and long term. We found that closeness centrality is the most important aspect of network capital for firm outcomes; degree has a moderate impact; the effects of betweenness are the weakest and statistically close to insignificant. The study contributes considerably to existing literature summarizing particular empirical evidences. Obtained findings also raise new theoretical issues and provide some useful practical implications.
Keywords:
board of directors, network analysis, relational capital, international companies
Downloads
References
Adams, R. B. and Ferreira, D. (2009) ‘Women in the boardroom and their impact on governance and performance’, Journal of financial economics, 94 (2), pp. 291–309. https://doi.org/10.1016/j.jfineco.2008.10.007
Andersson, S., Evers, N. and Griot, C. (2013) ‘Local and international networks in small firm internationalization: cases from the Rhône-Alpes medical technology regional cluster’, Entrepreneurship& Regional Development, 25 (9–10), pp. 867–888. https://doi.org/10.1080/08985626.2013.847975
Arora, A. and Gambardella, A. (1990) ‘Complementarity and external linkages: the strategies of the large firms in biotechnology’, The journal of industrial economics, pp. 361 379. https://doi.org/10.2307/2098345
Batjargal, B., Hitt, M. A., Tsui, A. S., Arregle, J.-L., Webb, J. W. and Miller, T. L. (2013) ‘Institutional polycentrism, entrepreneurs’ social networks, and new venture growth’, Academy of Management Journal, 56 (4), pp. 1024–1049. https://doi.org/10.5465/amj.2010.0095
Benson, B. W., Iyer, S. R., Kemper, K. J. and Zhao, J. (2018) ‘Director Networks and Credit Ratings’, The Financial Review, 53 (2), pp. 301–336. https://doi.org/10.1111/fire.12157
Berezinets, I., Garanina, T. and Ilina, Y. (2016) ‘Intellectual capital of a board of directors and its elements: introduction to the concepts’, Journal of Intellectual Capital, 17 (4),pp. 632–653. https://doi.org/10.1108/JIC-01-2016-0003
Blanco-Alcántara, D., Díez-Esteban, J. M. and Romero-Merino, M. E. (2019) ‘Board networks as a source of intellectual capital for companies: Empirical evidence from a panel of Spanish firms’, Management Decision, 57 (10), pp. 2653–2671. https://doi.org/10.1108/MD-12-2017-1238
Brandes, U. (2001) ‘A faster algorithm for betweenness centrality’, Journal of mathematical sociology, 25 (2), pp. 163–177. https://doi.org/10.1080/0022250X. 2001.9990249
Cassiman, B. and Veugelers, R. (2006) ‘In search of complementarity in innovation strategy: Internal R&D and external knowledge acquisition’, Management science, 52 (1), pp. 68–82. https://doi.org/10.1287/mnsc.1050.0470
Edvinsson, L. (1997) ‘Developing intellectual capital at Skandia’, Long range planning, 30 (3), pp. 366–373. https://doi.org/10.1016/S0024-6301(97)90248-X
Freeman, L. C. (1978) ‘Centrality in social networks conceptual clarification’, Social networks, 1 (3), pp. 215–239. https://doi.org/10.1016/0378-8733(78)90021-7
Geletkanycz, M. A. and Boyd, B. K. (2011) ‘CEO outside directorships and firm performance: A reconciliation of agency and embeddedness views’, Academy of management journal, 54 (2), pp. 335–352. https://doi.org/10.5465/amj.2011.60263094
Gemmill, G. and Thomas, D. C. (2006) ‘The Impact of Corporate Governance on Closed-end Funds’, European Financial Management, 12 (5), pp. 725–746. https://doi.org/10.1111/j.1468-036X. 2006.00274.x
Godigbe, B. G., Chui, C. M. and Liu, C.-L. (2018) ‘Directors network centrality and earnings quality’, Applied Economics, 50 (50), pp. 5381–5400. https://doi.org/10.1080/00036846.2018.1486992
Hagedoorn, J. and Wang, N. (2012) ‘Is there complementarity or substitutability between internal and external R&D strategies?’, Research Policy, 41 (6), pp. 1072–1083.Harris, D. A. and Helfat, C. E. (2007) ‘The Board of Directors as a Social Network: A New Perspective’, Journal of Management Inquiry, 16 (3), pp. 228–237. https://doi.org/10.1177/1056492607305901
Harris, R. and Robinson, C. (2003) ‘Foreign ownership and productivity in the United Kingdom estimates for UK manufacturing using the ARD’, Review of Industrial organization, 22 (3), pp. 207–223. https://doi.org/10.1023/A:1023622407571
Hillman, A. J. (2005) ‘Politicians on the board of directors: Do connections affect the bottom line?’, Journal of management, 31 (3), pp. 464–481. https://doi.org/10.1177/0149206304272187
Hormiga, E., Batista-Canino, R. M. and Sánchez-Medina, A. (2011) ‘The impact of relational capital on the success of new business start-ups’, Journal of Small Business Management, 49 (4), pp. 617–638. https://doi.org/10.1111/j.1540-627X.2011.00339.x
Kao, M.-F., Hodgkinson, L. and Jaafar, A. (2019) ‘Ownership structure, board of directors and firm performance: evidence from Taiwan’, Corporate Governance: The International Journal of Business in Society, 19 (1), pp. 189–216. https://doi.org/10.1108/CG-04-2018-0144
Kor, Y. Y. and Sundaramurthy, C. (2009) ‘Experience-based human capital and social capital of outside directors’, Journal of management, 35 (4), pp. 981–1006. https://doi.org/10.1177/0149206308321551
Larcker, D. F., So, E. C. and Wang, C. C. (2013) ‘Boardroom centrality and firm performance’, Journal of Accounting and Economics, 55 (2–3), pp. 225 250. https://doi.org/10.1016/j.jacceco.2013.01.006
Lee, J.-H., Choi, C. and Kim, J. M. (2012) ‘Outside Directors’ Social Capital and Firm Performance: A Complex Network Approach’, Social Behavior and Personality: an international journal, 40 (8),pp. 1319–1331. https://doi.org/10.2224/sbp.2012.40.8.1319
Lo, F.-Y., Stepicheva, A. and Peng, T.-J. A. (2016) ‘Relational capital, strategic alliances and learning: Indepth analysis of Chinese-Russian cases in Taiwan’, Chinese Management Studies, 10 (1), pp. 155–183. https://doi.org/10.1108/CMS-04-2015-0090
Love, J. H., Roper, S. and Vahter, P. (2014) ‘Dynamic complementarities in innovation strategies’, Research policy, 43 (10), pp. 1774–1784. https://doi.org/10.1016/j.respol.2014.05.005
Marinova, J., Plantenga, J. and Remery, C. (2016) ‘Gender diversity and firm performance: Evidence from Dutch and Danish boardrooms’, The International Journal of Human Resource Management, 27 (15), pp. 1777–1790. https://doi.org/10.1080/09585192.2015.1079229
Masulis, R. W., Wang, C. and Xie, F. (2012) ‘Globalizing the boardroom — The effects of foreign directors on corporate governance and firm performance’, Journal of Accounting and Economics, 53 (3), pp. 527–554. https://doi.org/10.1016/j.jacceco.2011.12.003
Merendino, A. and Melville, R. (2019) ‘The board of directors and firm performance: empirical evidence from listed companies’, Corporate Governance: The International Journal of Business in Society, 19 (3),pp. 508–551. https://doi.org/10.1108/CG-06-2018-0211
Molodchik, M. A., Shakina, E. A. and Barajas, A. (2014) ‘Metrics for the elements of intellectual capital in an economy driven by knowledge’, Journal of Intellectual Capital, 15 (2), pp. 206–226. https://doi.org/10.1108/JIC-08-2013-0091
Naidenova, I. and Parshakov, P. (2013) ‘Intellectual capital investments: evidence from panel VAR analysis’, Journal of Intellectual Capital, 14 (4), pp. 634–660. https://doi.org/10.1108/JIC-01-2013-0011
Nicholson, G. J. and Kiel, G. C. (2004) ‘Breakthrough board performance: how to harness your board’s intellectual capital’, Corporate Governance: The international journal of business in society, 4 (1),pp. 5–23. https://doi.org/10.1108/14720700410521925
Omer, T. C., Shelley, M. K. and Tice, F. M. (2014) ‘Do well-connected directors affect firm value?’, Journal of Applied Finance (Formerly Financial Practice and Education), 24 (2), pp. 17–32. https://doi.org/10.2139/ssrn.2167354
Peng, M. W. (2003) ‘Institutional transitions and strategic choices’, Academy of management review, 28 (2), pp. 275–296. https://doi.org/10.2307/30040713
Pérez-Calero, L., Mar Villegas, M. and Barroso, C. (2016) ‘A framework for board capital’, Corporate Governance, 16 (3), pp. 452–475. https://doi.org/10.1108/CG-10-2015-0146
Romero, D. and Molina, A. (2011) ‘Collaborative networked organisations and customer communities: value co-creation and co-innovation in the networking era’, Production Planning & Control, 22 (5–6),pp. 447–472. https://doi.org/10.1080/09537287.2010.536619
Rosenstein, S. and Wyatt, J. G. (1990) ‘Outside directors, board independence, and shareholder wealth’, Journal of financial economics, 26 (2), pp. 175 191. https://doi.org/10.1016/0304-405X(90)90002-H
Shakina, E. and Barajas, A. (2012) ‘The relationship between intellectual capital quality and corporate performance: An empirical study of Russian and European companies’, Economic Annals, 57 (192),pp. 79–97. https://doi.org/10.2298/EKA1292079B
Shakina, E. and Barajas, A. (2014) ‘Value creation through intellectual capital in developed European markets’, Journal of Economic Studies, 41 (2), pp. 272–291. https://doi.org/10.1108/JES-08-2012-0122
Shakina, E., Barajas, A. and Molodchik, M. (2017) ‘Bridging the gap in competitiveness of Russian companies with intangible bricks’, Measuring Business Excellence, 21 (1), pp. 86–100. https://doi.org/10.1108/MBE-03-2016-0017
Shakina, E., Naidenova, I. and Barajas, A. (2022) ‘Shadow prices for intangible resources’, Journal of Intellectual Capital, 23 (3), pp. 666–686. https://doi.org/10.1108/JIC-02-2020-0031
Shakina, E. A., Molodchik, M. A. and Parshakov, P. A. (2020) ‘Intangible-driven performance: Two decades searching for the Philosopher’s Stone’, Russian Management Journal, 18 (3), pp. 433–456. https://doi.org/10.21638/spbu18.2020.307
Totskaya, N. (2015) ‘Relational ties in emerging markets: What is their contribution to SME growth?’, New England Journal of Entrepreneurship, 18 (2), pp. 47–60. https://doi.org/10.1108/NEJE-18-02-2015-B004
Wang, Z., Cai, S., Liang, H., Wang, N. and Xiang, E. (2021) ‘Intellectual capital and firm performance: the mediating role of innovation speed and quality’, The International Journal of Human Resource Management, 32 (6), pp. 1222–1250. https://doi.org/10.1080/09585192.2018.1511611
Wincent, J., Anokhin, S. and Örtqvist, D. (2010) ‘Does network board capital matter? A study of innovative performance in strategic SME networks’, Journal of Business Research, 63 (3), pp. 265–275. https://doi.org/10.1016/j.jbusres.2009.03.012
Yayla, S., Yeniyurt, S., Uslay, C. and Cavusgil, E. (2018) ‘The role of market orientation, relational capital, and internationalization speed in foreign market exit and re-entry decisions under turbulent conditions’, International Business Review, 27 (6), pp. 1105–1115. https://doi.org/10.1016/j.ibusrev.2018.04.002
Yi, Y., Li, Y., Hitt, M. A., Liu, Y. and Wei, Z. (2016) ‘The influence of resource bundling on the speed of strategic change: Moderating effects of relational capital’, Asia Pacific Journal of Management, 33 (2),pp. 435–467. https://doi.org/10.1007/s10490-016-9458-z
Downloads
Published
How to Cite
Issue
Section
License
Articles of the St Petersburg University Journal of Economic Studies are open access distributed under the terms of the License Agreement with Saint Petersburg State University, which permits to the authors unrestricted distribution and self-archiving free of charge.
