Do interlocking directorates influence corporate diversification strategies? Evidence from Indian firms
by Deepali Dhingra; Neeraj Dwivedi
International Journal of Corporate Governance (IJCG), Vol. 13, No. 2, 2022

Abstract: Whether or not to diversify is one of the crucial decisions a board makes. This decision is heavily dependent on the composition of the board. Interlocking directorships on corporate boards are well-known to affect how the boards work. Board interlocks literature has attracted the attention of many researchers working towards board composition, and a positive impact of interlocks on firm performance is noticed. This study examines the role of board interlocks in the choice to diversify a company's portfolio. We hypothesise that boards with interlocking directors possess access to latent market information via networking, influencing the degree of corporate diversification. The paper further explores if this relationship is moderated by the interlocked directors' experience and the business group affiliation of the interlocking firms. A composite measure comprising product and geographical diversification is used to measure corporate diversification. The paper finds a significant positive association between interlocked boards and corporate diversification based on a sample of 376 Indian firms listed on the national stock exchange (NSE). Further, it is found that this relationship is positively moderated by the experience level of the interlocked directors. However, business group affiliation is found to moderate the interlocks-diversification relationship negatively.

Online publication date: Thu, 02-Feb-2023

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