The Influence Of Interlocking Directorates On Corporate Strategy And Performance

The board of directors is one of the important management institution in corporate, plays an important role in the strategic decision of the corporation. However, a typical characteristic of the board of directors of the listed company in China is that there is a widespread network connection between the board of directors (that is interlocking directorates). whether these features of the relationships network of the board of directors (interlocking directorates) could affect the company strategy or performance? This is what the article tries to answer. Based on the data of the interlocking directorates, the corporate strategy and the corporate performance of A-share listed companies from 2000 to 2010 in China, the paper theoretically and empirically analyzes the effects interlocking directorates on corporate strategy and performance. By measured the interlocking directorates with the intra-industry tie (The two enterprises netted by the interlocking directorates belong to the same industry) and inter-industry tie (The two enterprises netted by the interlocking directorates don't belong to the same industry), the corporate strategy with strategy choice, strategy change and diversification strategy (strategy choice, strategy change and diversification strategy respectively represent the static, dynamic and results features of the corporate strategy), the paper finds that:Firstly, the intra-industry tie has a significant negatively impact on the strategy defection, but the inter-industry tie has a significant positively impact on the strategy defection. That is the more the company has the intra-industry ties, the more likely the company follows the mainstream strategy which the industry is generally used; and the more the company has the inter-industry ties, the more likely the company deviates the mainstream strategy which the industry is generally used. The interaction of the intra-industry tie and the strategy defection has a significant negatively impact on the corporate performance; The interaction of the inter-industry tie and the strategy defection has a significant positively impact on the corporate performance. These mean that when the company chooses to deviate the mainstream strategy of the industry, many intra-industry ties has adversely affected on the corporate performance, but many inter-industry ties will improve the corporate performance.Secondly, the intra-industry tie has a significant negatively impact on the strategy change, but the inter-industry tie has a significant positively effect on the strategy change. That is the more the company has the intra-industry ties, the more likely the company retains the present strategy, but the more the company has the inter-industry ties, the more likely the company changes the present strategy. The interaction of the intra-industry tie and the strategy change has a significant negatively impact on the corporate performance; The interaction of the inter-industry tie and the strategy change has a significant positively impact on the corporate performance. These mean that when the company chooses to change the strategy, many intra-industry ties have adversely affected on corporate performance, but many inter-industry ties will improve the corporate performance.Thirdly, the intra-industry tie has a significant negatively impact on the diversification strategy, but the inter-industry tie has a significant positively effect on the diversification strategy. That is the more the company has the intra-industry ties, the more likely the company chooses the professional strategy, but the more the company has the inter-industry ties, the more likely the company chooses the diversification strategy. The interaction of the intra-industry tie and the diversification strategy has a significant negatively impact on the corporate performance; the interaction of the inter-industry tie and the diversification strategy has a significant positively impact on the corporate performance. These mean that when the company adopts the diversification strategy, many intra-industry ties have adversely affected on corporate performance, but many inter-industry ties will improve the corporate performance.Fourthly, combined the above three conclusions, we can find that the different types of the interlocking board of directors have the different effects on the corporate strategy, and the effects of interlocking directorates to corporate strategy are depend on the combining degree of the interlocking board of the different type and the corporate strategy.