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The Influence of Board Capital Breadth and Depth on Strategic Investment:the Moderating Role of Political Uncertainty and Board Compensation Incentives

Author: WangYingNing
Tutor: LiuJingJiang
School: Zhejiang University
Course: Entrepreneurial Management
Keywords: board capital strategic investment political uncertainty boardcompensation incentives
CLC: F272.92
Type: Master's thesis
Year: 2014
Downloads: 47
Quote: 0
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Abstract


Few studies have focused on the relationship between board capital and strategic investment so far which aroused the interest from both scholars and executives. The gap between them as well as the lack of bringing in moderators to make further researches has drawn our attention. Based on the agency theory and resources dependence perspectives, we conduct the empirical research method to examine the differential effects of board capital’s breadth and depth on strategic investment and also examine the moderating effect of political uncertainty and board compensation incentives.Through making the content analysis of106corporations’annual reports and then the linear regression analysis of the data obtained, the results suggest that:(1) Both board capital’s breadth and depth are positively related to strategic investment;(2) political uncertainty has a negatively moderating effect on the relationship between: board capital breadth and strategic investment; while having a positively moderating effect on the relationship between:board capital depth and strategic investment;(3) average total director compensation has a negatively moderating effect on the relationship between:board capital breadth and strategic investment; while having a positively moderating effect on the relationship between:board capital depth and strategic investment;(4) percentage of contingent compensation negatively moderates the effect on the relationship between:board capital breadth and strategic investment; while positively moderates the effect on the relationship between:board capital depth and strategic investment.The results show that board consisting of directors either with diverse functional and occupational background as well as interlocks within different industries, or having rich experience in the corporation and its focal industry will be beneficial for corporations to make strategic investment decisions. In addition, political uncertainty and the changes it brings about are closely relevant to the decisions of strategic investment, for the external environmental factors should be taken into consideration regarding its positive and negative influences. Finally, an appropriate and well-designed board compensation scheme should be put into effect by properly allocating the percentage of cash compensation and stock options.

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CLC: > Economic > Economic planning and management > Enterprise economy > Enterprise planning and management decision - making > Corporate Administration > Personnel Management
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