Do Director Interlocks and Board Network Matter for Firm Performance?

The theoretical predictions about the net impact of board network on firm performance are ambiguous and the issue becomes even more complex in emerging economies characterized by concentrated ownership structure and dominated by business group firms. This paper empirically analyzes the effect of board network formed by director interlocks on firm performance in the context of an emerging market economy like India during the period characterized by exogenous changes in corporate governance regime in the country. Using a sample of NSE listed firms in India; I construct board network measures applying network methodology and analyze its impact on firm performance. The study finds evidence of positive association between board network and firm performance given by adjusted Tobin's Q ratio during the period in accordance to the resource dependence hypothesis. Further the study finds that board network appears to be more important for firms that are larger, involved in research activities or are older. I find that board network is positively related to performance of standalone and group firms, but the magnitude of positive effect is smaller for group firms. Also, within group firms, in the presence of high level of divergence in the cash flow and control rights of the controlling shareholder, the relation between board network and performance cease to exist. The result of the study highlights the positive role of non-market flow of information and resources through interlocked directors as a driver of superior firm performance in the Indian context during the last decade