We introduce a novel concept of network interactions in which board connections provide access to external spheres of political influence, state ownership, and family control. We posit this form of indirect access via board association enables connected firms to benefit from information privy to external networks while avoiding their resource-based costs of membership. Board network data are assembled for 1290 East Asian firms and linked to hand-collected data on political connections and corporate ownership around the 2008–09 crisis. Companies with board connections to state-owned firms and family business groups had greater crisis-period accounting performance and stock returns. In countries with weak institutional development, board connections to politically connected firms were also beneficial.
Most extant literature implicitly equates obtaining information through board interlocks to acting on the information. We investigate triggers that help to translate the information into action. In addition to exposure to the information by board interlocks, we suggest that the self‐interest of the individuals who create these ties and hierarchical power of interlinked firms determines the likelihood of taking actions of adopting new practices.
Using the action of adopting two distinctive governance practices, stock option pays or board reform, we find that sent ties and received ties affect the adoption decisions differently. Whereas sent ties reflect managerial interests, received ties derive power from a hierarchical relationship between the focal firm and the interlinked firm. Such differential nature of sent and received ties drives a differential result in terms of adopting two distinctive governance practices. We also find support for different moderating effects of firm performance on the impact of sent and received ties.
In this study, we incorporated the self‐interest of executives with sent ties to prior adopters and the power of directors who establish ties with prior adopters that are hierarchically positioned. By doing so, this study paints a more fine‐grained picture regarding underlying mechanisms by which information gained through ties is translated into action. This provides important insights for both agency theory and resource‐dependency theory.
Hierarchical board ties are not a unique phenomenon in Japan. We often find such ties in business groups in China, India, Korea, and some European countries. Establishing board interlocks among subsidiaries in a business group is an important governance resolution for controlling the whole business group. Hence, our findings that the ties carry not only information but also agent's interest and hierarchical power should be taken into account when a business group designs board interlocks.
board policy issues
resource dependence theory
Managers of international subsidiaries, especially subsidiary CEOs, operate at critical interfaces within multinational enterprises (MNEs) and hold strategic responsibility for the operations in their country. Yet, their impact on subsidiary performance has received scant research attention. Building on the subsidiary entrepreneurship and strategic leadership literatures, we develop a model of how subsidiary CEOs' entrepreneurial leadership affects subsidiary performance, and how this relationship is moderated by the subsidiary context that determines managerial discretion. We combine survey data of 291 international subsidiaries in South Korea with archival data to test our hypotheses. Our results show that subsidiary CEOs' entrepreneurial leadership enhances subsidiary performance and that this relationship is strengthened by managerial discretion. Our study highlights the pivotal role of subsidiary CEOs within MNEs and contributes to a microfoundational understanding of international subsidiary management.
80th Annual Meeting of the Academy of Management (AOM 2020)
The contributions to society of market-based economic systems are undeniable and impressive. Markets have mobilized knowledge to deliver significant advances in prosperity, in terms of greater economic wealth. For decades prosperity had been accompanied by equally impressive gains in progress in terms of improved social well-being. However, while prosperity continues to advance, particularly where markets are most efficient, progress seems to have stalled. Today, scholars are again questioning whether prosperity can adequately deliver progress. We answer, in this paper, that it can—but only if guided by a purpose that is not determined by the blind pursuit of market efficiency and profit maximization. We explain how a relentless pursuit of efficiency allocates resources towards ever greater prosperity but often away from progress. Closing the prosperity–progress gap, we argue, will require a broader role for firms that includes market-shaping. We define market-shaping as the paradoxical process of persistently pursuing a purpose by allocating resources in a way that, on the one hand, shelters them from the market’s forces of efficiency, and on the other hand, redefines what the market indicates is efficient. In this way, markets and firms can reinstate themselves as engines of both prosperity and progress."
80th Annual Meeting of the Academy of Management (AOM 2020)
In this paper, we reexamine the efficacy of redundant investment strategy and late entrance as a risk-hedging mechanism at the context of technological uncertainty, competition for an industry-wide dominance. Unlike recent findings against the effectiveness of such risk-hedging mechanisms, we identified a positive impact of dual investments by late entrants. In an early stage of a nascent industry when multiple (e.g. four or five) technologies competes, a dual investment strategy might not work. Later when the competition for dominance becomes a competition between two technologies, however, dual investments into the two technologies turns out effective. We also found that a business group structure contributes to managing complexity caused by dual investments. A semi-market structure institutionalized within a business group is effective in striking an optimal balance between internal competition and cooperation within the boundary of the firm."
This study examines the role of international institutional complexity, which is defined as the scope and multiplicity of institutional dimensions across foreign markets, on emerging market multinational companies (EMMCs)' innovation performance. We propose that the international institutional complexity provides learning opportunities for EMMCs' innovation performance but also incurs higher management costs to handle information overload from overextended internationalization. We further propose that the host exposure and the heterogeneity of an EMMC's top management team (TMT) moderate the main effect of international institutional complexity on EMMC innovation. The empirical testing utilizes a longitudinal panel data of 7,072 foreign expansion steps by 767 Chinese firms between 2001 and 2010, offering strong support for the proposed hypotheses.