Boards and diversification strategy: evidence from the Spanish savings banks sector

Soto, María Gracia García; Vera, Francisca Rosa Álamo

doi:10.22495/cocv5i1c4p2

Cited by 3 publications

(3 citation statements)

References 86 publications

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“…On the other hand, previous studies claim that the advantages of larger boards are related to their greater heterogeneity (Dharmadasa et al, 2014;Guest, 2009), which can provide firms with more comprehensive advice, better-informed monitoring and better external linkages; thus, improving growth strategy options evaluation and implementation (Zheng and Tsai, 2019). Consistently, most previous studies suggest that the greater the number of directors, the greater the opportunities to implement diversification moves (Garcı ´a Soto and A ´lamo Vera, 2007;Marouan, 2015), consistent with findings reporting that more diversified companies tend to have a higher number of outside directors (Anderson et al, 2000) that can provide firms with a better access to external resources.…”

Section: The Role Of Board Sizesupporting

confidence: 87%

“…At the corporate strategy level, the diversification decision is one of the riskiest and most important. In the specific context of family business, such a decision represents a fertile area of inquiry (Garcı ´a Soto and A ´lamo Vera, 2007;G omez-Mejı ´a et al, 2010) that, despite receiving little empirical attention over the years with only a few notable exceptions (Anderson and Reeb, 2003), has recently seen a revived academic interest (Hafner, 2021). Indeed, diversification is controversial for family firms because it highlights the potential mismatch among their multiple objectives (Mun ˜oz-Bullon et al, 2018).…”

Section: Introductionmentioning

confidence: 99%

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The corporate governance-diversification link: exploring the heterogeneity of family firms

Galavotti

D’Este²

2022

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Purpose Building on behavioral agency theory, the authors explore the role played by corporate governance characteristics as drivers of the diversification strategies of family firms. Specifically, this study aims to investigate the effects of board size and board gender diversity on the likelihood that family firms will execute a diversifying acquisition vis-à-vis a related acquisition. Furthermore, the authors investigate the contingency effects played by foreign directorship and the firm’s listing status. Design/methodology/approach The hypotheses are tested on an original sample of 213 cross-border acquisitions executed by Italian family firms between 2008 and 2021. Findings The findings suggest that both large board sizes and greater gender diversity positively affect the diversification of family firms. While the presence of foreign directors magnifies the positive effect of board size, gender diversity discourages diversification in the case of listed firms. Originality/value The originality of this study is twofold. First, while prior literature has mostly focused on the family vs nonfamily dichotomy, this paper contributes to an emergent line of research investigating the heterogeneity among family firms’ corporate strategy decisions. Second, by exploring the corporate governance-diversification link in the context of family business, the authors answer to recent calls that diversification by family firms deserves further investigation in light of its highly controversial nature in terms of socioemotional wealth implications and potential mismatch among multiple objectives.

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Section: The Role Of Board Sizesupporting

confidence: 87%

Section: Introductionmentioning

confidence: 99%

The corporate governance-diversification link: exploring the heterogeneity of family firms

Galavotti

D’Este²

2022

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“…As regards to the directors’ board variables, Jensen and Meckling (1976) believe that a large board of directors is generally less effective than a small size as it favors the dominance and the enlargement of the discretionary power. A study conducted by Garcia-Soto and Alamo-Vera (2007), dealing with the factors that influence the diversification strategy in the Spanish banks, found that board size is positively associated with diversification. According to Chenini and Jarboui (2016), the presence of foreign directors may help banks to facilitate their access in capital markets to grow, diversify their investments and offer their products to foreign customers.…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

The impact of performance, liquidity and credit risks on banking diversification in a context of financial stress

Gafrej

Boujelbène

2021

IMEFM

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Purpose The purpose of this paper is to examine the relation “diversification-risk-performance” for Islamic and conventional banks in different financial stress levels. Also, it aims to investigate the impact of the structure of board directors, macroeconomic variables and banking specific factors on banking diversification. Design/methodology/approach The authors use generalized least squares regressions to examine the impact of banking specific, macroeconomic and governance variables on investment diversification of 66 Islamic and conventional banks during the period from 2006 to 2018. In addition, this study uses panel threshold regressions to study the impact of banks’ profitability and risks on investment diversification in different financial stress levels. Findings The findings show liquidity risk, performance, credit risk and capitalization ratio are significantly related to investment diversification of Islamic banks. On the other hand, liquidity and credit risks, capital to total assets ratio and size have a significant influence on investment diversification of conventional banks. In addition, the diversification strategy of Islamic banks is less sensitive to macroeconomic indicators. As regards to governance variables, the results suggest that the board size, the executive directors and the foreign directors have significant impact on the investment diversification in Islamic banks. On the other hand, chief executive officer duality and foreign directors affect significantly the investment diversification of conventional banks. This study also found that financial stress enables us to develop a better understanding of the relation “performance-risks and diversification.” Practical implications It is expected that the findings of this paper can be used by Islamic and conventional banks in Gulf Cooperation Council (GCC) region that seek to manage the diversification strategy by reducing risk-taking and maximizing profitability. This study suggests that bank managers should consider the level of financial stress during the development of diversification strategy. It provides a better understanding for bank managers about the effect of bank specific and macroeconomics factors as well as governance variables on diversification. Originality/value This study focuses on providing an extension of the existing literature by studying the impact of financial stress indices on the relation between banks’ risk-performance and investment diversification for Islamic and conventional banks in the GCC region.

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When are family firms more likely to make acquisitions? A behavioural agency approach to the role of family involvement

Galavotti

D’Este

2022

COC

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This study aims to explore the effect of family firms’ corporate governance characteristics on their acquisition propensity: as the extant literature is increasingly emphasizing the heterogeneity of family firms and is calling for further insights into the peculiarities affecting their decision-making processes, our objective lies in identifying corporate governance mechanisms that influence their acquisition attitude. Thus, building on the behavioural agency theory, we investigate the effect of family members’ ownership stake, their involvement in the board of directors (BoD), the family versus non-family chief executive officer (CEO), and the generational step on the propensity to execute acquisitions. We test our framework on a sample of 207 acquisitions executed by Italian listed family firms in the 2014–2020 period. In line with our prediction, we find evidence that family members sitting on the board of directors are negatively associated with acquisitions. However, when family firms are guided by a family versus a non-family CEO, the willingness to embark on acquisitions increases. Family ownership is a non-significant driver of the propensity to acquire, which further confirms the importance of decision-making bodies. Finally, the propensity to acquire does not appear to be driven by whether the firm is still in its first versus later generations. Overall, our study contributes to the ongoing conversations on the heterogeneity of family firms and offers several implications for both theory and practice.

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Boards and diversification strategy: evidence from the Spanish savings banks sector

Cited by 3 publications

References 86 publications

The corporate governance-diversification link: exploring the heterogeneity of family firms

The corporate governance-diversification link: exploring the heterogeneity of family firms

The impact of performance, liquidity and credit risks on banking diversification in a context of financial stress

When are family firms more likely to make acquisitions? A behavioural agency approach to the role of family involvement

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