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While scholars often emphasize a positive relationship between board ties and corporate performance, financial market regulators are increasingly being concerned that board ties create a social insular elite network in which members are loyal towards each other and not  necessarily  seek  to maximize  shareholder wealth.  Therefore,  corporate  governance reform  initiatives  seek  to  limit board connectivity  among  listed corporations.

However, little  is known  about how  listed  corporations  cope with  societal  expectations  to  reform their board networks. We adopt an Institutional Theory perspective to examine the extent to which companies have broken board ties. Using longitudinal data on 75 top-100 listed corporations in the Netherlands from 2001 to 2005, we find that corporations with large board  networks  have  been  affected most.

Meanwhile,  the  largest  and most  prestigious firms  have  become  structurally  disconnected  from  the  rest. Moreover, we  observe  that corporations with exposure  to  international  financial markets and participation  in board reform initiatives partially nullified the perceived negative influence of market regulation.

In conclusion, our study  indicates the need for studies that go beyond mere compliance, i.e.,  research  that unravels  the complex processes associated with corporate  responses  to board reforms and changing governance expectations. 

Submitted On:
15 Jul 2011
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139.2 KB
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Submitted On:
15 Jul 2011

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