Board social ties, institutional change asynchronicity, and performance

Abstract

AbstractThis research contributes to the literature on the relationship between board social ties and the complexity of institutional environments. It remains unclear what reactions a firm needs to take in response to the complexity of interconnected changes in multiple institutional dimensions. We seek to understand the changes of social ties on corporate boards due to the asynchronicity across dimensions of pro-market institutional changes—an overlooked type of institutional uncertainty. We address the gap in understanding firm responses to institutional environmental complexity by analyzing changing board social ties as a response to the asynchronicity of pro-market institutional changes in emerging markets. Based on a sample of 8205 firm-year observations during 2005–2016 in 15 emerging markets, we find that firms increased the presence of directors with both corporate interlocks and political ties in response to asynchronous pro-market institutional changes. This increase appeared less salient when the firm already had a greater presence of the other type of social ties on board or a higher percentage of state ownership. Finally, we find that the performance consequences of such board changes depend on the existing level of pro-market institutional developments.