The Senior Management Team Of Social Capital On Corporate Diversification Strategy And Performance

The core of strategic management is to ceaselessly attribute the performance difference and strategic choice to some reason, in order to find out the formula for success which can enhance the sustainable competitive strength for a corporation. From Porter's industrial economics to resource-oriented theory, scholars in different schools have done a great deal of research in this field. Despite their achievements, their research is far from being perfect. They all over-simply treat an organization as an abstract and rational individual, so that their theories can not provide the micro explanation for a corporation's strategic choice. The Upper echelon, advanced by Hambrick和Mason, is an amendment for the former theories. Opening up a new perspective as well as a new school, the Upper echelon believes that the top management is the key factor for a corporation, and claims that the micro logic of corporate performance difference and strategic choice can be found out through studying the psychological traits of its top management. Sadly, because of its psychological bases, Upper echelon suffers a flaw of Under-socialization—focusing too much on internal psychological mechanism while overlooking the external social factors.In fact, any top management is embedded in a specific social network, thus, the social capital contained in which is no doubt an important factor for their strategic choice. Since long ago, China have been said to be a relation-oriented country. "China is not individual-oriented, nor society-oriented. It is oriented by relations." Ling Suming, China's famous scholar once said in 1949. In China, without "relations", life and business will be full of inconvenience while with certain relations, everything can turn out to be fine. More importantly, the particularity of the current transforming economy has further reinforce the extent to which "relations" can influence China's society. It is under such a special social economic and cultural context that this paper try to combine theoretical analysis and empirical study in order to answer the following questions: whether the social capital contained in top management's (on group level) social network. social status as well as political identity can influence the corporation's (on organizational level) strategic diversification choice as well as the performance? If so. then what is the underlying mechanism?Integrating theoretical analysis, empirical conclusion as well as empirical testing all together, this paper firstly summarizes the current theories and schools in order to get the theoretical insight. Then, hypotheses are advanced, based on a small-sample questionnaire survey and the former research achievements. Finally, empirical tests by SPSS and STATA for these hypotheses are conducted, using 210 listing companies' data from 2004 to 2006 in Shanghai stock exchange. And the conclusions are as following:1 TMTs of different regions have structural difference in their social capital. TMT's total quantity of social capital is higher in corporations in eastern regions where market-oriented economy is more advanced, compared to western regions. And the social capital which is embedded in business networks and alumni networks is significantly higher in eastern corporations than the western.2 Diversified Strategy has a negative impact on corporate performance. Whether the corporation is state-owned or private-owned and whether its diversification is region-oriented or business-oriented, diversified diseconomies all emerge, which indicates that China's corporations are in the primary phase of growth so that Chandelle's scale as well as scope economies can not be realized because of lacking managerial talent, ethics and expertise. Maybe, such a kind of diversified diseconomies is the necessary cost for the growth of China's corporation.3 TMT's social capital has some impact on strategic diversification choice. Total social capital, consisting of Political Networks, Business Networks and Alumni Networks has significantly positive influence on business and regional diversification. Besides, the influence on diversification by TMT's social capital varies from the location of corporate headquarter, ownership types as well as corporate size.4 Apart from certain direct impact, TMT's social capital can also indirectly influence corporate performance through the interaction with diversification. TMT's social capital can significantly amend the destruction caused by diversification, indicating it has an important effect on the implementation of corporate strategy.