Impreion after Reading the Paper- CEO outside Directorships and Firm Performance: Reconciliation of Agency and Embeddedne Views
CAI QIAOXUE(蔡巧学), 201120125912, School of Busine Administration
Source of the Paper
This paper was found in a top journal- Academy of Management Journal, 2011, Vol.54, No.2, 335-352, written by the authors MARTA A.GELETKANYCZ, from Boston College and BRIAN K.BOYD, from Arizona State University.
Summary of the Content
This paper mainly focuses on the relationship between CEO outside board service and its contribution to firm performance.Based on theoretical and empirical research, the author put forward a reconciliation of agency and embeddedne views.
Ever since a long time ago, there is always a debate surrounding CEO outside board and its contribution to firm performance.Agency scholars argue that CEO outside directorships constitute a form of managerial opportunism that potentially detracts from internal responsibilities, while embeddedne scholars insisting on that directorship ties afford acce to information and resources of important strategic utility.
Thus, the authors proposed and tested a model of more than 400 large firms on the purpose of studying the long-term performance of CEOs outside directorships in different contexts.At last, they draw the conclusion that in low growth, more competitive and le diversified firms, the CEOs outside directorships will give better long-term performance to the firms.
Hypothesis of the Paper
The authors put forward five hypothesizes in this paper, and they are
First, CEOs outside directorships are positively related to long-term firm performance, which is based on the embeddedne view.
Second, CEOs outside directorships are negatively related to long-term firm performance, which is based on the agency view.
Third, Industry growth moderates the relationship between CEO outside directorships and long-term firm performance in such a way that effects are more positive in low growth contexts.Four, Industry concentration moderates the relationship between CEO outside directorships and long-term firm performance in such a way that effects are more positive in contexts of low concentration.
Five, Diversification moderates the relationship between CEO outside directorships and long-term firm performance in such a way that effects are more positive in contexts of le diversification.
Validation of the Hypothesizes
To validate the hypothesis, the authors chose a four-indicator measure incorporating:
(1) The total number of outside directorships held by each CEO,
(2) A count of directorships with Fortune 1000 firms,
(3) The average net sales of outside firms on whose boards a CEO served, and finally
(4) The average profitability of the outside firms on whose board the CEO served in 1987.The authors set seven variables as below:
1.Predictor variables:
Industry growth, measured over a five-year period (1982-1986) using a measured developed and validated by De and Beard.
Industry concentration, measured using the Herfindahl Hirschman index.
Diversification, measured using Palepu’s (1985) entropy measure.
2.Outcome variables:
Firm performance, measured using five-year averages (1987-1991, inclusive) of return on aets (ROA) and return on sales (ROS).
3.Control variables:
CEO human capital, measured using an ordinal scale ranging from 0 to 7.
Prior performance, measured using a two-year composite of return on aets.
Firm size, measured as the value of total aets.
To validate the hypothesizes, the authors used statistic methods including
(1) The chi-square goodne-of-fit statistic,
(2) Chi-square adjusted for degrees of freedom,
(3) The goodne-of-fit index (GFI),
(4) The root-mean-square residual (RMSR), and
(5) The coefficient of determination (CED) (Bollen, 1989).
Results of the research
The authors experiment the data, and found that
(1) little evidence support that the typical CEO accumulates vast quantities of outside
directorships,
(2) CEO outside directorships did not appear to have a significant, direct effect on performance,
neither a positive nor a negative one,
(3) Firm performance was positive and significant for firms operating in low-growth
environments but not in high-growth contexts,
(4) CEO outside directorships have greater benefit in contexts of low concentration than of high
concentration,
(5) Greater performance gains accrue from CEO outside board service when a firm is le
diversified.
Totally to say, the authors suggest that the performance of CEO outside directorships is different according to different contexts.When in low growth, low concentration industry, more competitive and le diversified firms, CEO outside directorships are more positively related to the long-term performance.
My impreions of the paper
First, honestly to say, this is the first time I have finished reading an English paper on management.I have to admit that papers in English top journals are well written not only in their logic but also in their words.
Second, we should poe the spirit of skepticism which is quite needed in academic circle when doing research.We should not always readily believe the previous theories as they are restricted by their era.
Third, there are neither absolute correct nor incorrect theories as results gained from one
context often change in another context.Instead, there is always a reconciliation view of two opposite ones that we should always pursue to solve problems.
Four, statistic methods, such as the chi-square goodne-of-fit statistic, Chi-square adjusted for degrees of freedom, the goodne-of-fit index, the root-mean-square residual, and the coefficient of determination, should be mastered by each post graduate so that he can do the academic research.
Five, the spirit of rigorous is quite needed in research so that we must cultivate the custom of it.Hopefully I wish I can publish my paper in one of the top journals in the three year of my post graduate school.
