Abstract
Given the strategic importance of resources and service that interlocking directors bring to a firm, this study aims to examine the influence of board interlocks on financial performance in the restaurant industry based on the resource dependence theory. Further, as the primary purpose, this study incorporates geographic diversification as a pivotal contingent factor, playing a moderating role on the board interlocks-firm performance relationship. This study found not only a positive main effect of board interlocks on financial performance, but also a positive moderating effect of geographic diversification on the relationship between board interlocks and firm performance. These findings contribute to the corporate governance literature by providing a unique dimension that geographic diversification is a salient factor adjusting the effect of board interlocks on firm performance in the restaurant industry. The results further offer implications for managers and shareholders of restaurant firms when electing directors as representatives of shareholders.
1. Introduction
In the modern corporate era, a board of directors heavily involves in strategic decision-making and organizational outcomes of firms (Finkelstein & Mooney, 2003). Although CEOs and other top executives have generally played the most significant role in a strategic decision-making process (Hambrick & Mason, 1984), the board of directors, as a team elected to represent shareholders, has exerted implicit power over a wide range of strategic choices. Accordingly, boards affect firm performance by monitoring top executives and providing appropriate resources a firm needs to obtain a competitive advantage (Finkelstein et al., 2009; Hillman & Dalziel, 2003). Due to the pivotal role of a board, firms need to consider multiple qualifications of candidates when assembling the board, focusing particularly on what capital and resources newly elected directors are expected to bring to the firm (Nahapiet & Ghoshal, 1998; Coleman, 1988; Ooi et al., 2015).
Impact statement
This study expects to contribute to the US economy by providing guidelines for practitioners and shareholders of US restaurant firms when selecting a board of directors. Specifically, as restaurant firms increase a proportion of interlocking directors, based on the results of this study, they may expect better financial performance. Further, the economic benefits from board interlocks may be magnified while restaurant firms actively implement geographic diversification.
