How boards’ internal and external social capital interact to affect firm performance

• Published in: Strategic organization 2016-02, Vol.14 (1), p.6-31
• Main Authors: Barroso-Castro, Carmen, del Mar Villegas-Periñan, Ma, Casillas-Bueno, José C
• Format: Article
• Language: English
• Subjects: Boards of directors; Corporate governance; Financial performance; Interlocking directorates; Social capital; Social interaction; Studies
• ISSN: 1476-1270; 1741-315X
• DOI: 10.1177/1476127015604799

Board social capital encompasses two types of relationships: external and internal ties. This study examines the effects of board social capital on firm performance using a sample of the 103 companies listed on The Madrid Stock Exchange (2008). In order to measure board internal social capital, we consider the directors’ co-working experience on the board. On the other hand, to measure external board social capital, we rely on the directors’ ties to other organizations through interlocking directorates. We introduce internal social capital as a necessary variable for a more complete understanding of the external social capital/firm performance relationship. Our results have important implications for corporate governance practices. When firms propose reconsidering the composition of boards, they should not be guided solely by the intention of maximizing external connections. On the contrary, they should really take into account the fundamental role of internal social capital, which (1) intensifies the positive effects of the external capital when its level is low and (2) attenuates the negative effects of an excess of the board’s external social capital.