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Top management teams’ social capital in Taiwan
The impact on ﬁrm value in an emerging economy
Department of Accounting, National Chung Cheng University, Min-Hsiung, Taiwan, ROC Abstract
Purpose – The paper aims to examine the contributions of top management teams’ (TMTs) social capital to the creation of business value. Design/methodology/approach – Least-squares regression is used to estimate the relationship between TMT social capital and Tobin’s Q, while controlling for other ﬁrm- and industry-speciﬁc explanatory variables. Findings – The empirical results show that it is TMT extra-business group (but not intra-business group) directorate ties that are viewed as valuable strategic assets by the marketplace, and the beneﬁts of extra-business group directorate ties mainly come from the relationships’ greater prominence, but not from the relationships’ wider span or better position. Research limitations/implications – Past research has tended to focus on “who executives are” – their background, personality, etc. Since the results show that executives’ extra-business group social capital is strategically valuable, future research should take note that “whom executives know” – i.e. their social capital – is equally relevant to ﬁrm value. Practical implications – The prominence and prestige measures of a TMT’s extra-business group network can be used by managers, external analysts and investors to assess to what extent ﬁrms are capable of leveraging relationships with other ﬁrms, and thereby better predict future ﬁrm performance and value. Originality/value – This study contributes to the literature by investigating the differential effects of TMT intra- and extra-business group directorships on ﬁrm values. Evidence from the present study may serve as a step toward understanding the role of TMT social capital in creating potentially valuable intangible assets in emerging economies dominated by business groups. Keywords Intellectual capital, Social marketing, Senior management, Team working, Taiwan Paper type Research paper
TMTs’ social capital in Taiwan 177
Introduction This study examines the contributions of top management teams’ (TMT’s) social capital to the creation of business value. An array of studies have shown that in general, current investments in various intangibles, e.g. research and development (R&D), advertising and personnel training, are associated with higher future earnings and stock returns (Lev, 2001), yet the importance of social capital is still overlooked in The author is very grateful for the comments of participants in the 2004 Intellectual Capital in Taiwan International Conference, the guidance received from both Se-Hwa Wu (the guest editor) and Nick Bontis (the associate editor), and the ﬁnancial support from the Taiwan National Science Council (NSC93-2416-H-194-038). Journal of Intellectual Capital Vol. 6 No. 2, 2005 pp. 177-190 q Emerald Group Publishing Limited 1469-1930 DOI 10.1108/14691930510592780
˜ most research. Canibano et al. (2000) suggested that future studies should not only focus on R&D and advertising, but should also consider other intangibles among the possible determinants of the value of ﬁrms. It is in response to this research insufﬁciency that this study is addressed. In this study, TMT’s social capital is deﬁned as external directorships held by TMT members. This deﬁnition is ﬁtting, considering that one of the primary ways in which senior executives invest in social relations is through participation in the network of interlocking directorships among ﬁrms (Haunschild, 1993; Mizruchi, 1996). Haunschild (1993) argued that executives’ external directorships are likely to be the most inﬂuential of external ties,...