Board Social Capital And Firm Strategic Change On The View Of Board Interlocks

Strategic change is always one of the hot topics in the field of strategic study.With the acceleration of economic globalization,China has been on the critical economic transformation period.During this period,the domestic firms face a complex external environment,in which strategic change becomes critical for the firms to obtain the competitive advantage.However,some studies have shown that not all strategic change behaviors could improve firm performance.In reality,there is a big difference on the degree of strategic change among different corporations.What may make the difference?In other words,what are the factors that influence strategic change?To answer the question,we need to focus on the board of directors,the subject of decision making.We find that the phenomenon of board interlocks becomes more and more common nowadays.A typical board interlock exists between two firms whenever a director sits on both firms' boards.Board interlock finally constitutes the board's social capital,which may provide reliable information and guidance for the board's decision making process in the complex environment.So,our research explores the effect of board social capital on strategic change.Moreover,these interlocked firms with distinct industrial backgrounds may provide different information and guidance to the focal firms.Therefore,according to the existing studies,social capital could be divided into two dimensions,'breadth' and'depth'.The breadth aspect of board social capital captures the heterogeneity of interlocked firms' industries,while the breadth aspect of board social capital refers to the ratio of focal firm's industry interlocks to total interlocks.Considering the distinct concepts of board social capital breadth and depth,we suggest that the effects of board social capital breadth and depth on strategic change are different.Especially we introduce two internal mechanisms to analyze the above relationship from the view of organizational learning theory.The two mechanisms are informational mechanism and referential mechanism.In addition,we also introduce some moderators to seek the boundary condition of the main effect.The moderators include centrality and structural hole of interlocked firms,performance feedback and environmental uncertainty,CEO duality and CEO ownership.Based on the sample of Chinese listed non-financial companies from 2006 to 2014,we deeply analyze the relationship between board social capital and firm strategic change.The main conclusions of this study are shown as follows:First,the effects of board social capital breadth and depth on strategic change are distinct.In particular,greater board social capital breadth leads to more strategic change,while greater board social capital depth leads to less strategic change.Second,interlocked firms' network centrality positively moderates the relationship between board social capital breadth and strategic change,but negatively moderates the relationship between board social capital depth and strategic change.In contrast,interlocked firms' network structural hole negatively moderates the relationship between board social capital breadth and strategic change,but positively moderates the relationship between board social capital depth and strategic change.Third,performance feedback negatively moderates the relationship between board social capital breadth and strategic change,such that under low performance feedback,board social capital breadth produces more strategic change.Moreover,performance feedback positively moderates the relationship between board social capital depth and strategic change,such that under high performance feedback,board social capital breadth produces less strategic change.In addition,environmental uncertainty positively moderates the two main effects,such that under uncertain environment,board social capital breadth and depth both produce more strategic change.Fourth,CEO duality shows both negative moderating effects.In other words,when CEO holds the position of board chairman,board social capital breadth and depth both produce less strategic change.Moreover,CEO ownership shows no significant moderating effect and some possible explanations are given.In conclusion,our study makes four contributions as follows:First,based on the network of board interlocks among Chinese listed companies,we propose that the board social capital is composed of 'breadth' and 'depth.' Such classification not only completes the humans' recognition of social capital,but also expands the existing researches of board social capital and provides a new perspective for the future research.Second,we introduce board social capital to the field of strategic change and explore the relationship between board social capital and strategic change from informational and referential mechanism.Actually the formal studies studying the antecedents of strategic change mainly focus on top management teams,organizational characteristics and environments,but neglect the effect of the board's embedded interlock network.Our study well makes up for the shortage of existing researches and constructs a complete framework to help scholars to better understand the antecedents of strategic change.Third,in the view of social network theory,performance feedback theory,contingency theory and agency theory,we introduce three aspects of moderators.Our discussion of the moderating effects not only validates the two mechanisms of the main hypothesis,but also help scholars to comprehend the boundary conditions of the relationship between board social capital and strategic change.Fourth,except for the above theoretical contributions,our findings also have guiding significance for the board to manage the firm's networks and provide an important analytical perspective for the public or shareholders to predict the strategic change behaviors.