The authors investigate whether the board capital accumulated by centralized directors in large social networks can help firms handle complex tasks, as proxied by strategic alliances that suffer from problems of incomplete contracts.
Since connections among individuals facilitate human capital development, the authors use board centrality to measure board capital embedded in social ties. The authors further perform regression analyses to examine the relation between board capital and strategic alliances.
The authors find that firms with centralized boards are more likely to form strategic alliances, especially contractual alliances that exhibit a greater degree of contract incompleteness than joint ventures. In addition, the authors identify CEO tenure as a moderator for board capital and uncover business diversification and intangible intensity as moderators for task complexity. The authors find that firms with centralized directors are more likely to form strategic alliances when they have less-experienced CEOs, multiple business segments, and more intangible assets.
The authors document that board capital is valuable to firms involved in complex business transactions, which adds to our understanding regarding the determinants of strategic alliances.
