A Study On The Relationship Between Board Capital And Corporate Diversification Of Chinese Listed Companies

In the theoretical framework of the Resource-based View, the enterprise is acollection of resources; implementation of investment diversification strategy is tomaximize the effective utilization of internal resources of the company. The Board ofDirectors is the highest decision making body of the company’s strategy. Boardcapital is an important source of the company’s internal resources. Board capitalincludes the Board Human Capital, the Board Social Capital and the ability tointegrate resources. The Board Human Capital includes the knowledge, skills andexperience of the members of the Board. The more abundant knowledge andexperience Board members have, and the better skilled, the higher the Board HumanCapital is, and then the more resources the Board of Directors can provide forinvestment diversification strategy. The Board Social Capital includes the socialnetwork and the resources in it, and the ability to mobilize these resources. TheBoard Capital of listed companies can provide heterogeneity resources needed bybuilding and implementation of a diversified investment strategy. More extensivesocial network of the members of the Board, the higher the Board of Directors tomobilize these resources capacity is. The capital of the board of directors of listedcompanies can help companies to obtain the resources to build and implementationof investment diversification strategy required. The interaction of the Board HumanCapital and Board Social Capital also has an impact on investment diversification.In this paper, based on the Resource-based View, and the CSI300indexsample (2013) as the research object, I select the2007-2011Board of Directors andthe financial statements note in the segment in the data for the empirical analysis. In this paper, the entropy index and business income accounted for more than5%of theoperating income of the segment number of industries are two ways to measure thelevel of listed companies diversified investment. In this article screened the176listed companies, the implementation of a diversified investment strategy accountedfor more than83%. Selected indicators to measure the human capital of the Board ofDirectors related to the members of the Board of cognitive and behavioralcharacteristics, including gender, the knowledge structure timeliness, risk-lovingand educational background.I built econometric model of the Board of Directors of capital and the level ofinvestment diversification, and found through empirical research, listed companies inChina, the sex ratio, age composition and educational background of the members ofthe Board, by influencing the individual’s cognition and behavior, thereby affectingthe Board the level and structure of capital, investment diversification strategy willeventually be to have an impact. The more abundant the professional backgroundand political background of the members of the Board is, and the more extensivesocial network of the members of the Board, the more resources can be provided.According to the findings, I propose in the capital construction of the board ofdirectors of listed companies in China, it is necessary to pay attention to themembers of the Board of gender, age, educational background and careerbackground diversification, but also pay attention to improve the Board ability tointegrate resources, and thus more good for investment diversification strategy.When making diversified strategic, Listed companies of China must consider theefficient use of resources and the sustainable development, and avoid invest blindlyinto the new areas nothing with the internal resources of the company.