The Emprical Study On Director Board Functions Influencing Diversification Operation Effects

Diversification strategy as the firm's important growth direction advanced by Ansoff in 1954 has attracted much attention by scholars home and abroad, especially Rumelt made the pioneering research about diversification posture and corporate performance in 1974 drived the diversification strategy research into a new stage. However research home and abroad pay more attention to the relationship between diversification level, posture and entry model and firm value and corporate performance, and further more come to diversification discount or diversification premium conclusion depending on the empirical results. Especially based on the modern business institution and agency theory, scholars home and abroad think of the diversification strategy decisions as the results of the management team violating the shareholder value maximization, because they will enjoy personal pay, fame and control righ and so on. So the modern main research logic is how the director board as the core of corporate governance finds the way to enhance its supervision and control function, and further eliminate the diversification decision by the management team for personal benefit.Based on the deep analysis of relevant research, the study suggests the non-scientific diversification strategy by the management team agency problems may not be the only driving factors leading to diversification discount. Even though the scientific diversification decision may not mean diversification premium, the diversification strategic benefits is up to the scientific diversification implementation. But in the modern business institution, the director board charges the right of making and controlling diversification decision, and the management team takes the tasks implementing the diversification. But the study finds there some problems facing the management team when implementing diversification:firstly, agency problems facing the management team is more serious, the diversification implementation enhances the information asymmetry, also weakens the incentive effects of relevant incentive mechanism, all those factors increase the possibility of the management team opportunitisic behavior. Secondly, the management faces information processing ability. Because the difference of diversification strategy benefit base on different diversification posture and the enhanced volume of processing information, all those things make the management team take the information processing burden and its management ability face challenges. Thirdly, the management team facing resource constraints. Abundant research suggests institutional environments are the important factors influencing diversification benefits realization. While the management team's task is to operate resources not expand it, so the resource expansion limitation constrains their ability.So the director board as the core of corporate governance, whether they can solve the problems existing during diversification implementation will determine the firm can realize the potential diversification strategy to some degree. Firm practice and theoretical research suggest the potential contribution to corporate strategy by director board depend on two factors:First, we must broaden the scope, of director board function. The functions taken by director board must no be limited to control function, advice function and resource function must also be included. And further research suggests the director board must transit the function emphasis from the control function to advice function and resource function. Second the board function must not be limited to strategic decision stage, and further it should be applied to the whole process of strategy management. If the director board applies all its functions, the firm can realize the potential value maximization.Based on the prior analysis, from the perspective of diversification implementation the study examines the problems facing the management team during, and the strategic meaning of board relevant functions. And based on these analyses the study constructs a model descriptive board functions influencing diversification operation performance. Furthermore according to the board attributes the study advance the relevant hypothesis board functions influencing diversification performance, and further more the study use samples data from 2190 listed companies from 2005 to 2008 listed in Shanghai and Shenzhen Stock Exchange. At last we get some research conclusion:Firstly, strengthening the board functions is the necessarily factors to realize diversification value effects. And the board function construction depends on strategy. Secondly, compared with board control function, board advice function and resource function is more positive to diversification performance; Third the difference between board and management functional backgrounds is the important means to realize board advice functions, and also the board advice function's effects depend on corporate diversification needs; Fourthly, board resource function's strategic value effects is influenced by institutional environments.Compared with existent research, the study has some innovations:Firstly, the study deepens the research level from strategy decision making to strategy implementation under the diversification strategy and board functions research frame. And further more the study broaden the application scope of board functions during diversification strategy management process; Secondly, the study symmetrically examines the inside logic of board functions influencing diversification performance based on diversification implementation. Thirdly, the study examines the effects of board control function, advice function and resource function for diversification value for the first time, and the realization means and influencing factors of board functions. Fourthly, the study examines the compatibility among board control function, advice function and resource function during diversification strategy value realization. And the relevant research results provide some important meaning for guiding firms to implement diversification scientifically and effectively and also provide some advice for board construction.