Diversification, Interlocking Directors And Corporate Performance

It’s a general phenomenon in the board of listed corporations that the member of the board also served in two or more other companies. This kind of part-time directors are called the interlocking directors. They join a lot of companies, universities, research institutes and other organizations and these organizations are interlocking links. Interlocking director plays a more and more important role in the board in decision making and supervision of company operating. It’s of great importance to have a research on the interlocking directors and interlocking links. During the strategic period, Wanjiang City Belt integrates into the Yangtze River Delta actievely, and vigorously promotes structural adjustment. Research on interlocking directos and their characteristics, as well as the way interlocking directors involved in the operation and management is of great significance. Diversification of China’s enterprises despite a late start, but the development is very rapid. Interlocking directors have rich knowledge backgrounds and practical experiences, bringing a large number of heterogeneous information, and they promote the inter-firm coordination and information transfer. The interlocking directors affect the strategic choice of the board. They are conducive to diversification decisions, optimize the decision-making and improve efficiency. This paper studies the impact of interlocking directors to diversification of listed companies from scale and constitutes of interlocking directors two espects.The research is based on several theories, such as the Reciprocity Theory, the Resource Dependence Theory, the Finance Control Theory, the Management Control Theory, the Class Hegemony Theory, and so on. Based on these, this paper combined the method of the normative analysis and theoretical analysis, discussing the interlocking directorate and interlocking links^effect on business diversification and performance in49listed corporations from Wanjiang City Belt in2008-2010. The results of this study are as follows:(1) widespread diversification exits in listed corporations in Wanjiang City Belt. Every listed corporation has interlocking directors in his board and in the same time these interlocking directors join a large number of interlocking links such as companies, universities, research organizations;(2) the diversification in listed corporations from the Wanjiang City Belt has a positive effect on improving the performance, that is to say, the effect of diversification premium exists in Wanjiang City Belt listed corporations;(3)interlocking directors and interlocking links play a positive role in promoting the diversification premium effect through the interlocking directors and interlocking links are form different industries and different backgrounds. Through further subdivision of the interlocking links, the type of company interlocking links have a greater promotion to performance than the type of knowledge interlocking links, and knowledge interlocking links is greater than the administrative type.The paper is organized as follows:the first chapter is the introduction, explaining the research background, research significance, research methods and the possible innovations; the second chapter is theoretical basis and literature review, elaborating mainly from the business diversification and interlocking directors two aspects, which act as the research starting points of the thesis; the third chapter is the research design and model construction, including the assumptions, data sources, variable definition and model construction; The fouth chapter is empirical analysis. Choose listed companies meeting the requirements from the Wangjiang City Belt. Use its2008-2010data as the sample data and do relate escriptive statistics and a detailed analysis of the regression results of the model. On this basis, test the soundness of the conclusions of the study. The fifth chapter is the conclusions, recommendations and outlook of the study and point out the shortcomings in the study, future research directions of the chain of interlocking directors.The innovation of this paper is the classification of interlocking directors. The study divide interlocking directors into three types:company type, knowledge type and administrative-typ,measuring the interlocking directors from a more in-depth and comprehensive perspective. There are some limitations of this study. The research object is the listed Corporation from Wanjiang City Belt, and the overall number and representativeness have certain limitations; no in-depth study of the mechanism is given on how interlocking directors and interlocking links have these effects on diversification premium etc.