Director Network on Firm Performance and R&D Expenditure Decision

• Main Authors: Jia-Yu Chen, 陳家妤
• Other Authors: Chien-Chung Nieh
• Format: Others
• Language: en_US
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/17873873111972205608

博士 === 淡江大學 === 財務金融學系博士班 === 97 === This dissertation focuses on how director network impacts the firm performance and R&D expenditure decision. The first part entitled “The More Connections the Director has, The Better the Firm will Perform?”, the second part entitled “Threshold Effect between Intra-and Extra-Group Director Network on Firm Value of Listed Firms in Taiwan”, and the last part entitled “Director Networks and Their Similarity in R&D Expenditure Decision”. These three parts are briefly introduced below: The first part of the dissertation is to test the relationships among director’s social network, firm performance, and ownership-control structure. There are two competing theories that predict contradictory outcomes. Following social network hypothesis, one would expect a positive relationship between social networks and firm performance (Kirchmaier and Stathopoulos, 2008), while agency hypothesis predicted a negative relationship between social networks and firm performance (Kirchmaier and Stathopoulos, 2008). This dissertation concludes that the director network initially have a positive influence on firm performance, however, when the magnitude of the director network is too high there is a negative effect. Our study also contributes to the literature by documenting that controlling shareholders’ ownership structure serves as an important moderate variable between director network and firm performance. The second part of the dissertation aims at investigating whether application of intra-group director’s network and extra-group director’s network affect firm value of Taiwan listed firms. We apply panel threshold regression model to test if there exist optimal intra-group director’s network and extra-group director’s network, which may result in threshold effect and asymmetrical responses of the firm value to intra-group director’s network and extra-group director’s network. ROE is selected as the proxy variables to represent the firm value of the observed listed firms. Empirical result shows that intra-group director’s network only one single threshold effect exists, while all of the observations can be divided into two “regimes” depending on whether the intra-group director’s network is small or larger than the specific threshold value (32.15%). Two coefficients ( and ) are all positive with the evidence that the in the low intra-group director’s network is significant, while the in the high intra-group director’s network is not. Another, our empirical result shows that extra-group director’s network only one single threshold effect exists, while all of the observations can be divided into two “regimes” depending on whether the extra-group director’s network is small or larger than the specific threshold value (40.08%). Two coefficients ( and ) are all negative with the evidence that the in the low extra-group director’s network is significant, while the in the high extra-group director’s network is not. This suggests that corporation should use intra-group director’s network and extra-group director’s network wisely in order to maximize the firm value and stockholders’ welfare. The final part of the dissertation investigates whether members of a tight social network could impact directors'' decision-making and affect the policy uniqueness of a firm. In order to create a proxy for directors'' social connections, we employed methods from social network analysis similar to those used by Hochberg et al. (2007) and Kuhnen (2006) and constructed a measure that captures the various dimensions of connectivity, such as how well-connected the director is and the quality and predominance of each director''s connections in the network. Empirical results demonstrate that firms whose directors are well connected and whose connections are with better connected directors exhibit homogeneity in their R&D policy. Furthermore, empirical results suggest that both the concentration magnitude of industries and the maturity of the firms moderate the relationship between director network and R&D policy similarity. The results provided a new perspective of looking at firms’ R&D decisions by blending corporate finance and industrial organization together. We also provided some intuitions regarding why firms tend to cluster their innovation policy together and why we observe these policies occurring in waves.