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Board composition and firm performance: a test of the upper echelon perspective of entrepreneurship, innovation and competitiveness
Luleå University of Technology, Department of Business Administration, Technology and Social Sciences, Innovation and Design.
Luleå University of Technology, Department of Business Administration, Technology and Social Sciences, Innovation and Design.
2012 (English)Conference paper, Presentation (Refereed)
Abstract [en]

Principal TopicThe role and influence of board composition on firm performance and development has been extensively debated over the last decades. In 1984, Hambrick and Mason published their seminal work introducing the perspective of upper echelons. This perspective suggests that the demographic characteristics of firm boards may exert influence over firm performance since the demographics are associated with many cognitive bases, values, and perceptions thatguide and direct board members decision-making and functions. Several studies have found empirical results supporting these arguments and have further developed the conceptual reasoning for a relationship between upper echelon characteristics and firm performance. However, the wide array of theoretical underpinnings and perspectives combined with diverse empirical evidence has presented further questions over time in relation to how board composition influences firm performance and entrepreneurial levels in firms.In an attempt to address these questions, we model and test the relationship between board composition and firm performance and entrepreneurial levels. We propose a set of hypotheses that suggest that board composition can influence the potential of the boards to support effective monitoring and that composition also have influence of the human and relational capital of the boards. Overall, we suggest that board monitoring and board capital mediates the relationship between board composition and firm performance.MethodThe hypotheses were tested in a three year longitudinal data set including full responses from a sample of 296 firms drawn from a population of Swedish firms. In total were 1167 firms surveyed in the study and approximate 25% responded with completed surveys for the time period. A structural equation modeling approach including mediation models and control for lagged effects were adopted to perform tests.In the light of previous findings, we examine the relationship of both subjective and objective measures of firm performance and we also include longitudinal data to account for potential lagged effects. Besides examining board composition influence over traditional measures of performance, we examine how board composition influences firm levels of entrepreneurial orientation and innovation as well.In doing this we include a set of competing models where board composition variables are hypothesized to influence firm performance and entrepreneurial levels through board functions as board monitoring and board capital. Nested model tests are adopted to determine mediation and to decide how competing models and theories work in predicting firm performance through board composition.Results and ImplicationsResults indicate that board composition exerts influences over both firm performance and entrepreneurial levels in the studied firms. Overall, board composition both influences the firms’ ability to exert effective monitoring and contribute with human and relational capital to the firm that in turn are vital areas for the firms in order to perform well. The study has implications for entrepreneurship as it shows the importance of board composition upon firm performance and entrepreneurial levels. The study also contributes to current debates in upper echelon literature by including models of how the relationship between board composition and firm performance is mediated by board functions in terms of board monitoring and board capital. The study includes competing models and tests arguments from alternative theories when examining the role of board composition.

Place, publisher, year, edition, pages
2012.
Research subject
Entrepreneurship and Innovation
Identifiers
URN: urn:nbn:se:ltu:diva-34419Local ID: 89e05ec9-c64a-4fd6-b908-220956ff6aebOAI: oai:DiVA.org:ltu-34419DiVA: diva2:1007670
Conference
Babson College Research Entrepreneurship Conference : 06/06/2012 - 09/06/2012
Projects
CiiR-Centre for Inter-Organizational Innovation Research
Note
Godkänd; 2012; 20111213 (hoarml)Available from: 2016-09-30 Created: 2016-09-30Bibliographically approved

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