Service on a Stigmatized Board, Social Capital, and Change in Number of Directorships

Abstract

This article seeks to develop a nuanced understanding about the relationship between service on a stigmatized board and reduced opportunities for future directorships on other boards by examining the moderating effects of different dimensions of director social capital on this relationship. Evidence based on a unique sample of firms with boards that were viewed as being stigmatized by a group of corporate governance experts suggests that while serving on a stigmatized board is related to a reduction in future number of directorships held, this relationship is significantly mitigated for directors of upper‐class origins. However, social capital related to affiliations with other elite institutions does not appear to mitigate reduction in future number of directorships held by outside directors who serve on a stigmatized board. Implications and future directions in research on class‐based influence in the corporate community and stigmatization and devaluation of elites associated with corporate failures are discussed.

The Complexity of Social Capital: The Influence of Board and Ownership Interlocks on Implied Cost of Capital in an Emerging Market

“…This highlights the fact that relationships may not always have a positive potential but may also have a negative side [70].…”

The Impact of Contextualizing Board Structure on Firm Financial Performance in an Emerging Market

“…More importantly, a comprehensive process has been followed to manage the risk of endogeneity bias. Firstly, the choice of the dependent variable (ROA) is in line with comparable studies (De Andres et al, 2005;Nicholson & Kiel, 2007;Wurthmann, 2014). Thus, the possibility of reverse causality is controlled by the support of theoretical and empirical arguments, of which firm financial performance is the dependent variable.…”

“…The provision of vital resources by these directors through their networking and reputations would, as a result, enhance a firm's financial performance in Saudi Arabia. In keeping with class hegemony theory, views on the ruling elite and the embedded contextual attribution of the value of status and influence in Saudi business and society (Huse 2007;Wilson, 2012;Wurthmann, 2014), this paper proposes the following: H 1 : Outside directors from Najd are positively associated with firm financial performance in Saudi Arabia.…”

“…when suppliers or customers are invited to be board members). Through board interlocking and strength of reputation, these directors can provide access to vital resources with favourable financial performance consequences (Wurthmann, 2014). Nevertheless, class hegemony theory has been criticized for ignoring the changing structure of firm ownership.…”

“…Eventually, government funded projects are likely be allocated to the firms with this board cluster, leading to flourishing financial performance. Application of class hegemony and institutional theories (Huse, 2007;Wurthmann, 2014), suggest that having outside directors with royal status along with SGRDs in the boardroom would financially benefit the firm through the provision of the business and administration power of the latter, aligned with the utilization of the influence of the former in relation to government decisions on allocating public projects to the business community for implementation. Therefore, we hypothesize the following: H 3b : Outside directors with royal status, jointly with SGRDs, are positively associated with firm financial performance in Saudi Arabia.…”