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The value of outside director experience to firm strategies: Evidence from joint ventures

Published online by Cambridge University Press:  28 August 2014

Jung-Ho Lai ,
Li-Yu Chen  and
I-Ju Chen
Jung-Ho Lai
Affiliation:
Department of Finance, National Taipei College of Business, Taiwan
Li-Yu Chen*
Affiliation:
Department of Business Administration, Soochow University, Taiwain
I-Ju Chen
Affiliation:
Division of Finance, Yuan-Ze University, Taiwain
*
Corresponding author: [email protected]
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Abstract

This study investigates the effect of outside director experience on the performance of a firm's joint venture (JV) engagements, a type of strategic move where the influence of board remains under-investigated despite directors’ active participation in the decision-making process. By examining the direct linkage between director experience and strategic performance, our research presents the first direct evidence of the value outside director experience has for a firm's strategic engagements; this has previously been exclusively assessed by indirect indicators. We address this important issue in the following three ways. First, we explore what type of director experience contributes most to JV outcomes. Second, we investigate what circumstantial factors significantly influence the value of director experience. Lastly, we analyze whether incentive mechanisms moderate the relationship between director experience and firm performance. The results confirm the value of director experience gained from JV engagements but not from relevant industries. In addition, executive experience and the industry affiliation of the JV significantly moderate the value of director experience. Finally, experienced directors with large shareholdings outperform those with experience but limited stakes in the firms’ equity, justifying the necessity to motivate directors’ governance efforts despite their existing fiduciary obligation to shareholders. Our study contributes to agency theory by indicating that director experience holds a significant influence on a firm's strategic performance, an issue which has long been neglected in agency-based governance research. It also contributes to resource-dependence theory by providing a direct measurement of directors’ experiential assets, which have so far been exclusively assessed by indirect indicators. Finally, findings from this study can elucidate the long-standing question of how a firm can realize the purported benefits JVs provide by introducing a vital yet rarely explored factor: board experience.

Keywords

joint venturesboard of directorsexperienceresource-dependence theorycorporate governance
Type
Research Article
Information
Journal of Management & Organization , Volume 20 , Issue 3 , May 2014 , pp. 387 - 409
Copyright
Copyright © Cambridge University Press and Australian and New Zealand Academy of Management 2014 

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