Limiting role of resource dependence: an examination of director interlocks, board meetings and family ownership

Abstract

PurposeThis paper attempts to examine the activity and involvement of board of directors in internationalization activities of firms in emerging markets, by evaluating the resource provisioning roles of interlocks provided by board of directors, and the frequency of board meetings. We demonstrate that the effectiveness of board involvement is contingent upon the levels of family ownership in firms since family ownership could impact the firm’s ability to utilize the presence of different types of board members.Design/methodology/approachThe authors test our hypotheses on a sample of listed Indian companies, extracted from the Prowess database published by the Centre for Monitoring Indian Economy (CMIE), a database of the financial performance of Indian companies. On a panel of 3,133 firm years of 605 unique Indian firms with foreign investments, over a time period of 2006–2017, the authors apply different estimation techniques.FindingsThe results demonstrate that both board meeting frequency and director interlocks are instrumental in supporting internationalization activities in emerging market firms. However, family ownership moderates the role of insider and independent interlocks on internationalization investments in different ways; the authors find that interlocks provided by independent directors support internationalization activities in family firms, whereas those provided by insider directors do not. Further, the study also finds that board meetings are less effective in internationalization of family firms.Practical implicationsThe authors conclude that family firms aiming at international diversification require to develop more connected and networked independent directors to enable internationalization in firms. While independent director interlocks enhance the international investments, it is also useful to know that board meetings are ineffective in utilizing the resources in family firms. This points to the possibility that family firms should device mechanisms to integrate family meetings with board meetings so that they can utilize the within-family processes to aid in their internationalization decisions.Originality/valueThe study contributes to resource dependence theory by understanding its limiting role in family firms. Theoretically, it helps delineate the limiting resource provision role of the insider directors vis-à-vis independent directors. The authors argue that the resource provision role of insider director interlocks does not effectively help in internationalization in comparison to independent director interlocks in family-dominated firms. Consequently, the study shows the limiting role of resource provision and utilization by family-owned firms in comparison to non-family-owned firms.

The role of founder CEO and independent board in family firms' international growth: evidence from India and Italy

“…To summarize, our findings indicate that founder CEOs' inclination to grow by increasing extent of exports or FDI is highly dependent upon the institutional context. Similarly, impact of board independence on Founder CEO–FF's international growth relationship is context dependent and independent board will be ineffective where family's influence (via founder CEO in our study) will be high, which builds on the findings of Panicker and Upadhyayula (2021).…”

“…Board independence is measured as the ratio of independent directors to the total number of directors sitting on the board. As mentioned earlier, board independence is the key governing variable that could impact Founder CEO-firm's international growth relationship (Panicker and Upadhyayula, 2021).…”

“…FFs are different from non-family firms due to their preference for non-economic goals over economic goals (Gómez-Mejía et al ., 2007); familiness –in terms of family's control, influence and involvement in the firm – as well as governance (e.g. the board of directors) are argued to be key drivers of FF's international growth (Panicker and Upadhyayula, 2021). However, the literature is not univocal on the relationship between familiness, the role of board and FF's international growth, and it calls for further research that examines the impact of FFs' heterogeneity on their decisions related to international growth strategies (Arregle et al ., 2021).…”

Internationalization of hybrid state-owned enterprises from emerging markets: Institutional investors as enablers

“…First, the presence of foreign investments is regarded as the most noticeable and prominent aspect of internationalization, and the presence of foreign investments continues to be the primary criterion in the internationalization of firms (Dunning, 1998;Hassel et al, 2003). Second, similar studies in the context of India have recommended using this measure of internationalization (Panicker & Upadhyayula, 2021;Singh & Delios, 2017).…”

Revisiting foreign market entry motivations: the case of Korean commercial banks

“…Second, this paper extends the horizon of the traditional perspective on power imbalances. In examining the mitigation of power imbalances, the current literature on resource dependence theory mainly involves gaining competitive advantages by specific marketseeking strategies such as cost leadership (Cho and Lee, 2018;Laufs and Schwens, 2014) or interorganizational arrangements such as M&As, JV, alliances and board interlocks (Hillman et al, 2009;Sukumara Panicker and Upadhyayula, 2021). Notably, prior research streams have focused on firms that can implement such market-seeking strategies or interorganizational arrangements, regardless of power dynamics or dependencies between focal firms.…”