Do Directors’ Connections Really Matter?

Abstract

Our study draws on the resource dependence theory to examine the social and relational factors in constituting a board. Board members connect the firm with its environment through their personal networks. Here we examine the influence of board members’ relationships on firm performance. We consider that to fulfill efficiently their mandate of helping acquire external resources, board members use their networks, which in turn will influence firm performance positively. Using a sample of the 100 top Canadian firms, we analyze the impact of three types of directors’ connections on the firm financial performance. According to our results, the influence of directors’ connections of firm performance seems to be positive but limited in the time. Firstly, the networks of board members are beneficial to the firm. Secondly, this beneficial effect is limited in time. Thirdly, it appears that the degree of usefulness of a specific board member’s network depends on the company’s activities.