The challenge of board composition: effects of board resource variety and faultlines on the degree of a firm's international activity

Depósito de Investigación de la Universidad de Sevilla https://idus.us.es/ This is an Accepted Manuscript of an article published by Elsevier in Long Range Planning, Vol. 55, on April 2022, available at: https://doi.org/10.1016/j.lrp.2020.102047 Copyright 2020 Elsevier. En idUS Licencia Creative Commons CC BY-NC-ND THE CHALLENGE OF BOARD COMPOSITION: EFFECTS OF BOARD RESOURCE VARIETY AND FAULTLINES ON THE DEGREE OF A FIRM’S INTERNATIONAL ACTIVITY ABSTRACT This study explores the relationship between diversity in board composition and the degree of a firm’s international activity. Specifically, we posit that board resource variety has a positive relationship with the international activity of the firm and that the strength of board faultlines moderates this relationship. Using data collected from Spanish public companies over the period 2005 to 2010, our analysis shows strong support for our hypotheses. Our work contributes to the literature on board's diversity by demonstrating that board resource variety should be captured by considering “the director profile” rather than any single attribute and that this type of variety can engender subgroups that weakens its benefits. Our results have therefore implications for the strategic management challenge international firms face when they put together their boards. A corporate board needs to structure itself in such a way as to benefit from the wealth of the variety of its resources, but without succumbing to the risks posed by conflicts between subgroups arising from the presence of faultlines. INTRODUCTION A firm’s international strategy is crucial for its survival and success (Hitt et al., 2006). From 2000 to 2016 alone, world exports increased by 147.52% (World Trade Organization, 2017). Spanish exports represented 34.3% of the country’s GDP (Gross Domestic Product) in 2018, thereby achieving a growth rate greater than that of any other European country (ICEX, 2018). However, internationalization is also a high-risk corporate decision that leads a firm into an unfamiliar and competitive environment, with higher demands as the degree of its activities increases. The firm therefore needs a diverse set of resources, especially those of information and knowledge, to analyse the international environment and to make decisions (Knight and Liesch, 2002). A typical way of acquiring or accessing such resources is through the composition of the board of directors (Datta et al., 2009; Hitt et al., 2006; Pearce and Patel, 2018; Rivas, 2016, 2012a, 2012b). The literature on board composition and the firm’s internationalization, albeit limited, argues that variety in the configuration of this governing body is clearly desirable (Rivas, 2012a; Sanders and Carpenter, 1998). A varied composition implies a wider access to information, knowledge, and skills thanks to the different attributes provided by its members. This is especially important when the board faces complex and uncertain decisions (Kim et al., 2009; Tarus and Aime, 2014; Tuggle et al., 2010; Zona et al., 2013). However, these studies fail to consider the potential risks derived from diversity in the composition of the board (Kaczmarek, 2017; Williams and O’Reilly, 1998) if directors were clustered into subgroups; hence the question remains open regarding whether diversity in board composition is advantageous for the degree of a firm’s international activity. To the best of our knowledge, empirical research has not delved into Harrison and Klein´s (2007) taxonomy on the study of board diversity and their consequences for the degree of a firm’s international activity. Talking about ‘variety’ in the composition of a board implies highlighting the differences in the relevant sources of knowledge or experience between its members, which facilitates decisions of a higher quality. Likewise, talking about ‘separation’ means focusing on the differences in perceptions, values, and beliefs of its directors, potentially leading to subgroups in the board, whose consequences may involve conflict and a negative impact on board performance (Harrison and Klein, 2007; Kaczmarek, 2017). By dismissing this double reality, we are neglecting the fact that diversity in board composition determines several major consequences over the degree of a firm’s international activity, whose effects are simultaneously contradictory (Kaczmarek, 2017; Williams and O’Reilly, 1998). This double reality obliges the firm to face a major challenge when deciding how to configure its board. It is therefore necessary to analyse the relationship between variety and separation in order to ascertain the mechanisms that facilitate or limit decisions on the degree of a firm’s international activity. On the one hand, from a decision-making perspective (Gruenfeld et al., 1996; Van Knippenberg et al., 2004; Williams and O’Reilly, 1998), a board with a greater variety of resources, provided by the directors, is better prepared to face the uncertainty and complexity that accompanies international decisions, since it benefits from the heterogeneity of information resources (Harrison and Klein, 2007). On the other hand, from a social categorization perspective, subgroups may arise between members of a diverse board, which may in turn introduce divisions that hinder effective teamwork and cohesion (Milliken and Martins, 1996). Faultlines are defined as hypothetical dividing lines that may split a group into subgroups, based on the alignment of multiple attributes. The degree of strength of faultlines quantifies the extent to which differences between board members produce subgroups with high intra-subgroup homogeneity and high inter-subgroup differences (Bezrukova et al., 2009; Lau and Murnighan, 1998). The presence of subgroups can lead to socio-emotional conflict and can create an inefficient decision-making process (Priem et al., 1995). It therefore becomes essential to realize that any attempt to configure board composition could simultaneously lead to both greater resource variety and stronger faultlines in the board. Ignorance of the joint effect of board resource variety and faultlines means that our understanding of how board composition is related to the degree of a firm’s international activity is far from complete. In this regard, in this study, we aim to answer the question: How does the strength of faultlines within the board affect the relationship between board resource variety and degree of a firm’s international activity? By answering this question, we hope to add to the knowledge on how the diversity in board composition is related to the degree of a firm’s international activity. A baseline relationship between board resource variety and the degree of a firm’s international activity is first established. The way in which the strength of faultlines moderates the baseline relationship is then examined. Our hypotheses are tested using the firms listed on the Madrid Stock Exchange over the period 2005-2010. Our research makes several contributions. First, our analysis reveals that there is a positive relationship between boards configured by directors with different profiles and the degree of a firm’s international activity. Our analysis thus points to the importance of considering the notion of profiles of directors, which comprises a combination of multiple attributes taken simultaneously. The profile, rather than a single attribute, reflects a director’s cognitive framework and behavioural preferences on the board, which leads us to consider a multidimensional indicator of board resource variety (Frable, 1997; Jackson et al., 2003). This concept of profile has not previously been applied to the study of diversity in board composition. We thereby contribute to the literature in diversity by responding to the call of previous researchers (Jackson et al., 2003; Pham et al., 2014). Our second contribution to the board’s diversity is that board faultlines exert a moderating effect on the baseline relationship of our study. We therefore propose that the decision-making and social categorization perspectives be integrated into the analysis of board composition, since the same attributes that contribute a variety of resources to a board can also engender subgroups within said board (Harrison and Klein, 2007; Kaczmarek, 2017). Finally, our study makes a contribution to the diversity framework by developing the concept of faultlines within the context of the board. We focus on faultlines based on task-related attributes (Kaczmarek et al., 2012a) that are context-relevant or salient when the board faces internationalization decisions. Furthermore, our investigation adopts a refined measure of faultlines that overcomes the limitations of other algorithms, such as that proposed by Thatcher et al. (2003), which only identifies two subgroups. The faultlines indicator used in this study pushes these boundaries more closely together and represents situations where boards have a high average number of members and where more than two subgroups could be formed. This algorithm has also allowed us to consider withinsubgroup homogeneity and between-subgroup differences. THEORY AND HYPOTHESES Board resource variety and a firm’s international activity The boundaries for today’s businesses are becoming increasingly globalized, which encourages them to increase their international presence. International activity exposes firms to one of the most complex decision-making environments (Filatotchev and Wright, 2011) and they must be fully aware of the new threats and opportunities arising from new stakeholders. Greater complexity and uncertainty demands a richer and more creative decision-making process (Barkema and Shvyrkov, 2007; Lee and Park, 2006). Therefore companies have become aware of the need to have directors who, from the apex of the company, are able to make effective international decisions (Sanders and Carpenter, 1998). The board’s role in the international process includes: deciding what business to be involved in (Stiles, 2001); facilitating contact with stakeholders (e.g., foreign customers, suppliers, and foreign governments); building external relations; and accessing capital (Barroso et al., 2011). Such a role can be instrumental in the firm’s success when competing in foreign markets (Sirmon et al., 2011). Board resource variety is fundamental to the breadth of the firm’s strategic actions (Kim et al., 2009). As the board actively participates in the strategic decision-making process (Pettigrew and McNulty, 1995), it brings unique resources to the firm, such as knowledge, experience, and social connections. Specifically, the decision-making perspective suggests that a variety of director profiles increases the skills, abilities, knowledge, and information of the board as a whole (Williams and O’Reilly, 1998). Groupthink may be avoided (Watson et al., 1993) since the different views and perspectives of the directors will prompt creative discussions with a wide range of decision criteria. At the same time, a board whose members present different profiles enjoys a greater capacity for co-opting external influences and gaining critical resources, which encourages new strategic alternatives. Recent studies on board resource variety have analysed how, for example, this variety influences firms’ strategic change (Haynes and Hillman, 2010; Tarus and Aime, 2014) discussion of entrepreneurial issues (Tuggle et al., 2010), and innovation (Wincent et al., 2010; Zona et al., 2013). However, there has been very little study of the relationship between board resource variety and a firm’s internationalization (Rivas, 2012a), despite the enormous importance of such decisions in the current business environment. We therefore propose that the benefits of a board with varied resources are especially relevant when making decisions relating to the degree of a firm’s international activity (Rivas, 2012a). A board with a greater variety of profiles may perform relatively complex, knowledge-intensive tasks, leading to a richer and more creative international decision-making process (Bezrukova et al., 2009; Van Knippenberg et al., 2004) International activity also poses high risks and numerous challenges (Yuan et al., 2016) through factors such as liabilities of newness and foreignness, as well as the high transaction, coordination, and management costs incurred by cultural and institutional differences (Hitt et al., 1997). A board with a great breadth of experience and knowledge provided by the variety of its profiles might help to mitigate such risks. Furthermore, a board with varied director profiles typically has a wealth of social capital or outside connections, which in turn can help the firm gain access to potential resources (Pearce and Patel, 2018), such as support from financial institutions or external stakeholders, thereby facilitating the degree of a firm’s international activity (Hillman et al., 2000; Hitt et al., 2002; Kiel et al., 2006). Finally, in a board with a variety of profiles, the need to integrate a range of information and to reconcile conflicting viewpoints may encourage it to develop a comprehensive process for making internationalization decisions. In summary, a board comprising a variety of director profiles can contribute a broad set of knowledge, perspectives, skills, and external ties that enrich the strategic decisionmaking process, thereby allowing the firm to deal effectively with the complexities of internationalization. In turn, the firm can achieve a strong international presence. We therefore propose: Hypothesis 1: Ceteris paribus, there will be a positive relationship between board resource variety and the degree of a firm’s international activity The moderating effect of the strength of faultlines From the social categorization perspective (Turner, 1985), the formation of subgroups within the board brings about division. In this respect, the development of subgroups may influence the interaction and performance of the group (Ndofor et al., 2015). Specifically, the differences between subgroups are likely to result in cognitive and socio-emotional conflicts, which negatively affect the board’s decision-making process (Thatcher and Patel, 2011). The social categorization perspective is built on self-categorization (Turner, 1985), social identification, and similarity attraction theories (Thatcher and Patel, 2012). Selfcategorization and social identification theories explain: how, in order to define their identity and protect their self-esteem, individuals classify themselves and others into social categories based on salient attributes; and how this categorization may affect the overall cohesion and performance of the group. The similarity attraction perspective refers to the tendency of individuals to like, trust, and cooperate with others who are similar to themselves. tenure enables directors to develop the required firm-specific knowledge, whereas shorttenured directors may be more open to strategic change (Tarus and Aime, 2014). Newcomers are less constrained by the company’s status quo (Muth and Donaldson, 1998) and are more likely to identify non-obvious solutions to the firm’s strategic issues (Barroso et al., 2011). In this way, the knowledge of long-serving directors (Huang and Hilary, 2018) is combined with the energy and new perspectives of newcomers, thereby enriching the decision-making process and avoiding the groupthink bias that commonly arises in groups with homogeneous tenures (Rivas, 2012a; Tuggle et al., 2010). Previous studies found empirical evidence of the positive impact of variety in directors' tenure on decision-making that demands high capacity for information processing (Kim and Rasheed, 2014; Tuggle et al., 2010). In terms of tenure, Spanish law requires boards to renew their members on a six-year basis. At any given time, a board can have directors who are in their first six-year term, second six-year term, and so forth. The number of terms is employed to measure director tenure, whereby nine presents the highest number of terms in our sample. Each director is therefore characterized by a combination of two dimensions: director type and tenure. Three types of directors and nine levels of tenure yield a 27-level variable, corresponding to the 27 different profiles. These two attributes are critical to our research context, given the idiosyncrasies of Spanish boards (Heidrick & Struggles, 2014), where there is an explicit typology of directors, with different kinds of directors having different subsequent mandates. In order to obtain the board resource variety value, the Gini-Simpson 1 and Blau index (Blau, 1977) were applied, 1−λ= 1−∑(ni N)2 k i=1 for each board, where ni is the number of directors with the profile i, k is the number of different profiles, and N is the total number of directors on each board. The Blau index captures the probability of two individuals not belonging to the same group (profile) when they are selected. Its maximum occurs when members of the board are spread equally over all possible k profiles (Harrison and Klein, 2007). Thus, the larger the value of the index, the greater the board resource variety. For example, let us consider a board with five directors: one executive director and one independent director are both in their first term; two of three proprietary directors are also in their first term, but the third is in his or her second term. This board has four different director profiles and a Gini–Simpson index of 0.72. Moderating variable In our theory section, we consider that the relationship between board resource variety and the degree of a firm’s international activity is moderated by the strength of the faultlines between subgroups within the board of directors. Our measurement of the strength of the faultlines aims to capture the alignment of multiple attributes that results in subgroups (Van Knippenberg et al., 2004). As these attributes of differentiation make sense for the members and are easily cognitively activated, the relevance of the attributes is greater for engendering social categorization. In this study, the type of director and director tenure are considered as salient attributes. In line with Kaczmarek et al. (2012a) our faultlines construct focuses exclusively on 1 The Gini-Simpson index value is 1-lambda, where lambda is the Simpson index (Simpson, 1949), also referred to in the economics literature as the Herfindahl or Herfindahl-Hirschman index differences in task-related attributes, thinking they are more likely to emerge and become more salient in work situations, which increases the likelihood that faultlines be activated. Each typology of director has different origins and responsibilities when attending board meetings as delegates of specific interest groups ( Kaczmarek et al., 2012a). The type of directors can be considered a task-related attribute of diversity (Kaczmarek et al., 2012a) insofar as each type of director represents unique interests that significantly influence the performance of their duties on the board (Pelled, 1996). Executive directors have full-time contracts with the company and hold an executive responsibility. While proprietary directors represent the interests of majority shareholders, independent directors are appointed for their professional worth and represent the interests of minority shareholders. Therefore, divisions based on type of directorship can be easily sparked when the board faces internationalization decisions: a context in which conflicting interests could come together (Barkema and Shvyrkov, 2007). Differences in directors’ tenure may give rise to subgroup or categorization since similarity in time of board appointment may facilitate both attraction and interaction. Directors identify with others who enter the board at the same time (Meyer et al., 2015). Tenure as a task-related attribute can also be associated with status, experience, or authority within the board, leading to intergroup bias between directors with greater or lesser seniority within this governing body (Meyer et al., 2015). Tenure has already been used in previous studies as salient attribute in the formation of board faultlines (Kaczmarek et al., 2012a, 2012b; Tuggle et al., 2010). In our context, directors can perceive themselves as being more capable and as having greater legitimacy to influence international decisions than others, based on their tenures. In other words, although these two attributes type of director and directors’ tenure have been conceptualized as a source of variety before, it can now be argued that both can engender subgroup (Harrison and Klein, 2007). Therefore, our measurement of the strength of faultlines, based the alignment of these two attributes, captures the extent to which differences between board members produce subgroups with high intra-subgroup homogeneity and high inter-subgroup differences. The strength of board faultlines was calculated by using the cluster-based averagesilhouette-width (ASW) procedure (Meyer and Glenz, 2013). First, a hierarchical clustering was carried out using both the Ward algorithm and the average linking algorithm, thereby generating two sets of potential combinations within each board. Second, for every combination, in order to maximize ASW, each director was temporarily moved to the other subgroups to evaluate the increment in ASW and the combination of subgroups that provided maximum value was selected. This process was repeated iteratively until there was no further change in the ASW value. The combination with the maximum ASW value was selected. The ASW is the average of all board members’ individual silhouette widths, which quantifies the fit of each director within the assigned subgroup. The individual silhouette width of member i is given by (𝑖)=𝑏𝑖−𝑎𝑖 𝑚𝑎𝑥(𝑎𝑖,𝑏𝑖) , where bi is the mean of the dissimilarities between director i and each subgroup to which director i does not belong, and where ai is the dissimilarity to the subgroup to which director i belongs. Dissimilarities are measured as the mean of the Euclidean distances between the director and each subgroup member. The main advantage of using this method of calculating strength of faultlines is that it overcomes the limitations of other algorithms, such as that proposed by Thatcher et al. (2003), which only identifies two subgroups. It therefore closely represents situations where boards have an average of ten members and where more than two subgroups could be formed. Meyer and Glenz’s algorithm simultaneously considers within-subgroup homogeneity, between-subgroup separation, and the optimum number of subgroups. The faultlines strength index (ASW) takes values from 0 to 1, which indicate absolute weakness and absolute strength, respectively. The mean value is 0.51. Considering the same example as above, the cluster algorithms yielded three different combinations of subgroups. In this particular case, the combinations offered by the Ward algorithm and the average linkage algorithm are the same. The first and the second solutions are formed of two subgroups with two and three members each (ASW=0.46) and one and four members each (ASW=0.46), respectively. The third solution is composed of one subgroup formed by one director and two subgroups of two directors (ASW=0.8). The latter has the largest ASW, and was hence chosen. The first subgroup is formed of the two proprietary-single-term directors; the second is formed of the executive-single-term and independent-single-term directors, while the proprietary-two-term director remains alone. -------------------------------- Insert Figure 2 about here -------------------------------- Control variables In order to minimize any interference that might limit the explanatory power of our model, a set of control variables were included. In line with previous studies, a selection of variables at the board level were first considered (Payne et al., 2009). Board size can affect the degree of a firm’s international activity (Sanders and Carpenter, 1998). Boards with more directors would be more capable of fulfilling multiplefunction roles (Payne et al., 2009) and would be more capable than a smaller board of advising the management on how to reduce the risks and costs of its global operations (Barroso et al., 2011; Oxelheim et al., 2013) and thus of promoting international activity. Board size is measured by the number of directors on a board (Garg and Eisenhardt, 2017; Howard et al., 2017). Directors often serve on a number of boards and in so doing form connections with other firms, a phenomenon known as ‘interlocks’ (Filatotchev et al., 2016; Hillman and Dalziel, 2003; Kor and Sundaramurthy, 2009; Tian et al., 2011). Interlocking directorates are thought to have a positive impact on a company by providing the management with access to a variety of strategic information (Carpenter and Westphal, 2001; Shipilov et al., 2010). Given that these benefits are complex and difficult to replicate, external directorship ties can constitute a major competitive resource that may affect a firm’s international activity. Following previous research (Haynes and Hillman, 2010; Kor and Sundaramurthy, 2009; Tian et al., 2011), director interlocks were calculated as the total number of directorships in other firms that were held by the focal firm’s directors, divided by the size of the focal firm’s board (Kiel and Nicholson, 2006). We included four firm-level control variables: firm size, firm age, foreign ownership, and past firm performance. Firm size has been included in a good deal of board research as an important control variable (De Andres et al., 2005; Gabrielsson and Winlund, 2000; Kiel and Nicholson, 2006) and was measured in our analysis as the logarithm of the firm’s total number of employees (He and Huang, 2011). Larger companies are generally more active in exporting and other international operations (Calof, 1993; Zahra et al., 2007) and may also employ specialized staff to explore foreign markets (Barroso et al., 2011). It has also been suggested that firm age, measured here as the number of years since the firm’s founding, affects the level of firm resources and its growth potential (Jackling and Johl, 2009; Kor and Sundaramurthy, 2009). Older firms are more likely to internationalize their operations (Calof, 1993; Zahra et al., 2007) and to develop the expertise required to benefit from these operations. Research suggests that ownership significantly influences a firm’s strategic choices (Zahra and Pearce, 1989) and a firm’s internationalization (Calabrò et al., 2013; Zahra, 2003). Foreign ownership, measured as the percentage of ownership in the hands of foreign owners, contributes towards a better understanding of international markets. Foreign investors may have relational resources and networks in their host country that facilitate the firm's access to these foreign markets (Calabrò et al., 2013; Musteen et al., 2009; Oxelheim and Randøy, 2003). Past firm performance is a common predictor of a firm’s future actions and performance (Geletkanycz and Boyd, 2011; Tian et al., 2011; Tuggle et al., 2010), and poor past performance usually drives the firm to seek new markets. Past firm performance was measured in our analysis as the return on assets for the year prior to the focal year. Our sample includes firms from a variety of industries. Since industry trends may affect a firm’s international activity (Rivas, 2012a; Rivas et al., 2009), each firm was modelled nested into its industry. To this end, the unified industry stock exchange classification was used as proposed by the National Securities Market Commission (CNMV, 2006), which includes the following categories: (1) petroleum and energy; (2) basic materials, industry, and construction; (3) consumer goods; (4) consumer services; (5) real estate services; and (6) technology and telecommunications. -------------------------------- Insert Table I about here -------------------------------- Statistical analysis In order to contrast the hypotheses, a regression model was applied to the panel data. The model is estimated with the “plm” econometric package (Croissant and Millo, 2008; Millo, 2017) and lagged substantive independent variables were considered in order to address the possibility of reverse causation. Lagged variables imply the loss of one year of data, which accounts for 390 observations corresponding to 78 companies. The results obtained for both the models of fixed and random effects are consistent, and the Hausman test showed that the estimators for the random effects were not only consistent but also more efficient. Table II shows the results of the random-effects model. Although endogeneity is frequently a serious concern in Strategy Management, there is no evidence for it in this case. The correlations between each substantive independent variable and the residuals of the regression are not significant (Bascle, 2008). Board Resource Variety: t=-0.78; df=388; p-value=0.44; cor=-0.04; Strength of Faultlines: t=-0.65; df=388; p-value=0.51; cor=-0.03 (Baltagi, 2011; Bascle, 2008). This implies that it is not necessary to deal with endogeneity with instrumental variables or any other method. Nevertheless, in order to increase the robustness of the result, we conducted a twostage analytical procedure. First, duality and the proportion of external directors were identified as instrumental variables (Boone et al., 2007) and a first-stage model was run. Duality was measured as a dummy variable that takes the value of 1 when the CEO is also chairperson of the board, and 0 otherwise. CEO duality provides firms with a clear focus on both objectives and operations (Chahine and Tohmé, 2009) . Therefore, one may expect boards with duality to have a higher level of board resource variety. Similarly, the percentage of non-executive board members (measured as the number of outside board members on each board divided by the total number of board members) decreases the likelihood of variety on the board. Non-executive directors are a monolithic group with similar interests who bring a lower variety of knowledge perspectives to the board (Goodstein et al., 1994). Although neither of the instrumental variables correlated with the degree of a firm’s international activity, they did correlate with board variety (0.21*** and -0.31*** for duality and percentage of non-executive board members, respectively). The residuals of the first-stage model were then used as a control to test our second-stage models. The results for all the hypotheses were consistent (Table III) with the prior results (Table II). Moreover, we conducted a Durbin-Wu-Hausman test, which failed to find a systematic difference across coefficients when endogeneity controls were included, further limiting the likelihood that endogeneity biased our reported results. RESULTS Table I provides summary statistics and correlations for the key variables used in the study. The degree of a firm’s international activity has an average value of 0.84. The boards in the sample have a high average degree of resource variety 0.70, while the average value of the faultlines is a more moderate 0.58. Table II presents the models employed to test our hypotheses: Model 1 includes only the control variables; Model 2 adds the board resource variety variable; Model 3 adds the variable of the strength of faultlines; and Model 4 adds the interaction between board resource variety and strength of faultlines. Hypothesis 1 predicts that there will be a positive relationship between board resource variety and degree of a firm’s international activity. As shown in Model 2 in Table II, the coefficient is both positive and significant (0.44, p<0.01). According to Hypothesis 2, the formation of subgroups, captured by the strength of the faultlines, would be expected to weaken the relationship between board resource variety and the degree of a firm’s international activity. We modelled this moderation by introducing the interaction between the variables of board resource variety and strength of the faultlines. The results obtained in Model 4 (Table II) confirm this expected moderation. The interaction effect is negative and significant (-1.41, p<0.01). As illustrated in Figure 3, the relationship between board resource variety and the degree of a firm’s international activity has a positive slope in companies with low strength of the faultlines, while the slope becomes slightly negative in companies with higher strength of the faultlines. -------------------------------- Insert Table II and Table III about here -------------------------------- -------------------------------- Insert Figure 3 about here -------------------------------- Supplementary analyses Additional analysis was carried out. Using latent clusters of normal distributions, we looked for different types of board, according to their size. The size of the board, along with its composition, have been the two aspects most analysed by the literature (Cornforth, 2001; Nordberg, 2017; Raheja, 2005) to understand the relationship between the structure of a board and the decision-making of a firm (Carpenter and Westphal, 2001; Ellstrand et al., 2002; Ruigrok et al., 2006). Furthermore, the size of the board can affect the decision of the degree of a firm’s international activity (Sanders and Carpenter, 1998). Thus, we study whether our findings would change with different board sizes. The results show that there are two clearly identifiable conglomerates of equal variance (n=468; df=4; BIC=-2426.54; var=4.60): a larger group (307 boards, 78.8% of the total), with an average board size of 9.51 directors; and a second, smaller group (83 boards, 21.2% of the total), with an average board size of 15.99 directors. 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Board Size 10.85 3.39 5.00 21.00 0.07 -0.06 0.34** 0.01 -0.03 7. Foreign Ownership 9.16 15.46 0.00 92.98 0.55** 0.17** 0.18** 0.18* * -0.02 -0.01 8. Board Resource Variety 0.70 0.11 0.24 0.91 -0.10* 0.10* 0.14** 0.07 0.01 0.02 -0.04 9. Strength of Faultlines 0.58 0.13 0.22 1.00 -.012* 0.16** -0.01 -0.05 -0.06 0.13* * 0.02 -0.32** Note: *p<0.1, **p<0.05, ***p<0.01 Note: M and SD are used to represent mean and standard deviation, respectively. Table II. Results of statistical analyses Degree of a firm’s international activity (1) (2) (3) (4) Control variables Firm Age 0.004*** 0.002 0.002 0.001 (0.001) (0.001) (0.002) (0.001) Firm Size 0.05 0.06 0.06 0.08* (0.04) (0.04) (0.04) (0.04) ROA n-1 -0.43** -0.48*** -0.49*** -0.52*** (0.18) (0.18) (0.18) (0.18) Interlocks 0.02** 0.01 0.01 0.01 (0.01) (0.01) (0.01) (0.01) Board Size 0.03*** 0.02** 0.01 0.01 (0.01) (0.01) (0.01) (0.01) Foreign Ownership 0.02*** 0.02*** 0.02*** 0.02*** (0.001) (0.001) (0.001) (0.001) Independent and moderator variables Board Resource Variety 0.44*** 0.43*** 0.88*** (0.15) (0.15) (0.22) Strength of Faultlines 0.16 0.83*** (0.15) (0.28) Board Resource Variety x Strength of Faultlines -1.41*** (0.51) Observations 390 390 390 390 R2 0.38 0.38 0.39 0.39 Adjusted R2 0.37 0.38 0.37 0.38 F Statistic 224.82*** 237.21*** 238.73*** 248.62*** Note: *p<0.1, **p<0.05, ***p<0.01 Table III. Results of statistical analyses with endogeneity control Degree of a firm’s international activity (1) (2) (3) (4) Control variables Firm Age 0.004*** 0.002 0.002 0.001 (0.001) (0.001) (0.002) (0.001) Firm Size 0.05 0.06 0.06 0.07* (0.05) (0.04) (0.04) (0.04) ROA n-1 -0.43** -0.47*** -0.49*** -0.52*** (0.18) (0.18) (0.18) (0.18) Interlocks 0.02** 0.01 0.01 0.01 (0.01) (0.01) (0.01) (0.01) Board Size 0.03*** 0.02** 0.01 0.01 (0.01) (0.01) (0.01) (0.01) Foreign Ownership 0.02*** 0.02*** 0.02*** 0.02*** (0.001) (0.001) (0.001) (0.001) Endogeneity control 0.08 0.05 0.07 0.10 (0.21) (0.21) (0.21) (0.21) Independent and moderating variables Board Resource Variety 0.44*** 0.43*** 0.88*** (0.15) (0.15) (0.22) Strength of Faultlines 0.17 0.84*** (0.15) (0.28) Board Resource Variety x Strength of Faultlines -1.41*** (0.51) Observations 390 390 390 390 R2 0.38 0.39 0.39 0.40 Adjusted R2 0.37 0.37 0.37 0.38 F Statistic 224.54*** 236.86*** 238.46*** 248.42*** Note: *p<0.1, **p<0.05, ***p<0.01 Table IV. Results of statistical analyses Degree of a firm’s international activity (5) (6) (7) (8) Control variables Firm Age 0.002 0.005 0.001 0.005 (0.002) (0.004) (0.002) (0.004) Firm Size 0.06 0.06 0.08 0.06 (0.05) (0.10) (0.05) (0.10) ROA n-1 -0.52*** -0.37 -0.57*** -0.36 (0.17) (0.93) (0.17) (0.93) Interlocks 0.01 -0.02 0.004 -0.02 (0.01) (0.02) (0.01) (0.02) Foreign Ownership 0.02*** 0.03*** 0.02*** 0.03*** (0.001) (0.004) (0.001) (0.004) Independent and moderator variables Board Resource Variety 0.48*** 0.38 0.99*** 0.47 (0.14) (0.33) (0.20) (0.55) Strength of Faultlines 0.28** 0.50 1.05*** 0.61 (0.14) (0.34) (0.27) (0.67) Board Resource Variety x Strength of Faultlines -1.72*** -0.27 (0.53) (1.34) Observations 307 83 307 83 R2 0.41 0.43 0.43 0.43 Adjusted R2 0.40 0.39 0.42 0.38 F Statistic 210.32*** 57.99*** 224.17*** 57.23*** Note: *p<0.1 **p<0.05 ***p<0.01