Directors from related industries and corporate diversification

Abstract

This paper aims to examine the impact of directors from related industries on corporate diversification. Director social networks, as a form of informal institution, have significant effects on firms’ production, operation, and strategic decision-making. However, few studies have focused on the economic effects of directors from related industries. We select Chinese A-share listed companies from 2012 to 2021 as our research sample and empirically examine the impact of directors from related industries on corporate diversification. The study finds that directors from related industries can promote corporate diversification. Mechanism tests that they can influence corporate diversification through the information channel. Heterogeneity analysis shows that the impact of directors from related industries on corporate diversification is more pronounced in firms with strong absorptive capacity, non-state-owned enterprises, and in regions with poor institutional environments. Additionally, directors from related industries can strengthen the positive correlation between diversification and corporate investment efficiency.