Limiting role of resource dependence: an examination of director interlocks, board meetings and family ownership

Purpose - This paper attempts to examine the activity and involvement of board of directors in internationalization activities of firms in emerging markets, by evaluating the resource provisioning roles of interlocks provided by board of directors, and the frequency of board meetings. We demonstrate that the effectiveness of board involvement is contingent upon the levels of family ownership in firms since family ownership could impact the firm’s ability to utilize the presence of different types of board members.

Design/methodology/approach - We test our hypotheses on a sample of listed Indian companies, extracted from the Prowess database published by the Centre for Monitoring Indian Economy (CMIE), a database of the financial performance of Indian companies. On a panel of 3133 firm years of 605 unique Indian firms with foreign investments, over a time period of 2006-2017, we apply different estimation techniques.

Findings - The results demonstrate that both board meeting frequency as well as director interlocks are instrumental in supporting internationalization activities in emerging market firms. However, family ownership moderates the role of insider and independent interlocks on internationalization investments in different ways; we find that interlocks provided by independent directors support internationalization activities in family firms, whereas interlocks provided by insider directors do not. Further, the study also finds that board meetings are less effective in internationalization of family firms.

Practical implications - We conclude that family firms aiming at international diversification require to develop more connected and networked independent directors to enable internationalization in firms. While independent director interlocks enhance the international investments, it is also useful to know that board meetings are ineffective in utilizing the resources in family firms. This points to the possibility that family firms should device mechanisms to integrate family meetings with board meetings so that they can utilize the within-family processes to aid in their internationalization decisions.

Originality/value – We contribute to resource dependence theory by understanding its limiting role in family firms. Theoretically, we help delineate the limiting resource provision role of the insider directors vis-à-vis independent directors. We argue that the resource provision role of insider director interlocks does not effectively help in internationalization in comparison to independent director interlocks in family dominated firms. Consequently, our study shows the limiting role of resource provision and utilization by family owned firms in comparison to non-family owned firms.