Board Interlocks and the Diffusion of Strategic Actions

Abstract

Research on the diffusion of strategic actions through board interlocks has mainly focused on the dyad level, meaning the one-on-one relations between a focal firm and its interlocked firm. The structural embeddedness of a firm and the characteristics of the interlocking director on the diffusion of strategic actions have received little scholarly attention. Drawing from a social network perspective, I first examine how duration of an interlock can influence the diffusion of strategic actions. In this dissertation, I specifically focus on mergers and acquisitions (M&As) in emerging markets as the strategic action of interest.

Next, I turn to the theory of triads in structural sociology and examine the influence of a closed triad. I theorize that Simmelian ties formed in a closed triad facilitate diffusion. I then propose the influence of the number of cliques in which both the focal firm and its interlocked firm are embedded. I also theorize how a sending board’s influence can increase the diffusion of M&As in emerging markets, whereas a receiving board’s access to information can decrease the diffusion. Finally, I explore the influence of interlocking directors. I specifically focus on the influence of the interlocking director’s position on either board (as a chair), tenure on the receiving board, and ownership in the focal firm.

I tested my hypotheses with public firms from 2001 to 2012 and limited the emerging markets to BRIC countries (Brazil, Russia, India, and China). I found evidence in support of five of my hypotheses. My results show that the duration of an interlock, the number of cliques in which embedded by both firms, the sending board’s influence, and whether an interlocking director is a chair on either board are positively associated with the focal firm’s implementation of M&As in emerging markets following the interlocked firm; whereas the receiving board’s access to information predicted the opposite direction. I then discuss the implications, opportunities for future research, and limitations of my dissertation. My main theoretical contributions are to extend social network theory and to provide a multi-level theory of board interlocks and the diffusion of strategic actions.