Impact of corporate network position on strategic risk and company’s performance – evidence from Poland

• DOI: https://doi.org/10.1108/CG-02-2021-0061
• Published date: 21 December 2021
• Date: 21 December 2021
• Pages: 947-978
• Subject Matter: Strategy,Corporate governance
• Author: Justyna Światowiec-Szczepańska,Beata Stępień

Impact of corporate network position on

strategic risk and company’s performance –

evidence from Poland

Justyna 

Swiatowiec-Szczepa

nska and Beata Stępie

n

Abstract

Purpose –The purpose of this study is to investigate the links between a company’s position in a

corporate network with its financial performance and strategic risk in the context of the largest Central

Europeanstock market.

Design/methodology/approach –This study integratesthe theory of social network analysis(SNA) with

corporate governancetheory with a special focus on resourcedependence theory. Using the framework

of networksocial analysis, the authors use networkmeasures of social capital and embeddedness.

Findings –The results of studying companies listed on the Polish stock exchange indicate that a

company’s corporatenetwork position has a significantnegative impact on strategic risk while havingno

influence on its financialperformance. The research also highlightsthe importance of a firm’s corporate

governancemodel for both performance and strategicrisk.

Research limitations/implications –The data collected, andSNA measures used made it possible to

conduct a cross-sectional study. Compared to longitudinal studies, this type of study has a couple of

disadvantagesaddressed in the paper. In the future, the dependencies observedin this study should be

testedusing longer-term data.

Originality/value –To the best of the author’s knowledge,this is the first paper integrating the corporate

personal and capital networks to test risk and performance dependencies in the context of Poland’s

corporategovernance model. The findings and conclusions can also be appliedto analyzing Central and

EasternEurope stock markets.

Keywords Network position, Corporate networks, Corporate governance, Interlocking directorates,

Social network analysis, Resource dependence theory

Paper type Research paper

1. Introduction

The core idea of strategic management is to discover the reasons for di fferences in company

performance or its strategic risk, defined as the unpredictable variability of a company’s

performance (Bromiley et al.,2001, p. 261). Analysis of these indicators should take into

account not only internal and external determinants in the form of the macro- and

microenvironments but also some meso-environment level measures s uch as inter-company

networks (David and Westerhuis, 2014). Paraphrasing Emirbayer and Goodwin (1994),

network analysis makes it possible to bridge the “micro-macro gap” levels of analysis. A

company’s position in the networks of its external relationships wit h other organizations is an

important determinant of its success (Zaheer and Bell, 2005). Network position refers to “the

extent to which the focal actor occupies a strategic positio n in the network by virtue of being

involved in many significant ties” (Wasserman and Faust, 1994,p.172).

Corporate networks are considered one of the oldest types of inter-organizational networks [1].

A corporate network is defined as a socioeconomic institution based on the structure of

Justyna 

Swiatowiec-

Szczepa

nska is based at

the Department of

International Finance,

Pozna

n University of

Economics and Business,

Pozna

n, Poland.

Beata Ste˛ pien

´is based at

the Department of

International Management,

Pozna

n University of

Economics and Business,

Pozna

n, Poland.

JEL classif‌ication –G32, G34,

L14

Received 4 February 2021

Revised 12 July 2021

18 October 2021

29 October 2021

Accepted 26 November 2021

The authorswould like to thank

two anonymousreviewers for

helpfulcomments and

suggestions.

The projectwas financed by the

NationalScience Centre,

grantedby decision no.

DEC-2013/11BHS4/00461.

DOI 10.1108/CG-02-2021-0061 VOL. 22 NO. 5 2022, pp. 947-978, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 947

personal relationships among members of company management and their supervisory

bodies [2] (interlocking directorate (ID)) and the companies’ capital links (interlocking

ownership or capital networks) (Windolf, 2002;Caiazza, 2019). It is a set of both inter-

organizational and inter-individual relationships (Sapinski and Carroll, 2018), while an ID

serves as a special type of corporate network that occurs when a person affiliated with one

organization sits on the board of directors of another organization (Mizruchi, 1996, p. 271).

A key property of corporate interlocking networks lies in their duality (Breiger, 1974;

Valeeva et al., 2020); they are composed of both corporations and the persons who

actually “carry” the interlocks by virtue of their multiple corporate affiliations. As they

include two types of nodes (directors and corporations), with lines running only between

one type and the other, they are called “two-mode” or “affiliation” networks (Sapinski and

Carroll, 2018). Therefore, a corporate network’s structure is determined by capital ties

(Kogut and Walker, 2001) or corporate ownership patterns (Lemma and Negash, 2016)

and the links between members of management and the supervisory bodies of different

companies (Davis, 1991;Kogut, 2012).

Taking an organizational perspective, corporate networks can be perceived as inter-

organizational communication channels (Brass et al.,2004) through which various benefits

and advantages can reach both organizations and individuals [3]. The benefits to

organizations primarily include:

䊏access to various types of information needed by the company, such as information

about markets, technologies, new practices and innovations (Davis, 1991;Mizruchi,

1996;Westphal et al., 2001);

䊏access to physical resources such as financial resources and assets (Pfeffer and

Salancik, 1978); and

䊏promotion of the company’s legitimacy (Mizruchi, 1996;Selznick, 1949).

The strategic role of corporate networks (Fama and Jensen, 1983) results from the

company’s intended strategy and does not stem from the private interests of managers [4].

The main motive for creating corporate links is to gain access to external resources and, at

the same time, manage uncertainty through board members’ external links. This problem is

explained in particular by resource dependency theory (Pfeffer and Salancik, 1978)[

5].

In spite of many studies in the field, research on how a company’s corporate network

position impacts company performance has provided ambiguous results. While some

studies indicate IDs have a positive impact on company performance (Penning, 1980;

Carrington, 1981;Burt, 1983;Farina, 2008;Sarkar and Sarkar, 2009;Mrizak, 2009;Peng

et al.,2015

;Martin et al.,2015;Wang et al.,2021), others suggest they have a negative

impact (Mizruchi and Stearns, 1988;Fligstein and Brantley, 1992;Non and Franses, 2007;

Croci and Grassi, 2014;Drago et al.,2015). Some studies with results (Meeusen and

Cuyvers, 1985;Phan et al.,2003) or no statistically significant relationships (Da Silva Rosa

et al.,2008

) are also published. IAs a possible reason for these inconclusive results (Martin

et al.,2015

). Address the impact of IDs on company uncertainty. Another reason for these

inconsistencies may be the different approaches used to measure a company’s network

position and its performance or uncertainty. Additionally, research findings may be biased

by national characteristics of corporate networks determined by the corporate governance

model and different institutional contexts. need for corporate network research in different

geographical and institutional contexts is now clearly highlighted (Caiazza and Simoni,

2015;Caiazza, 2019). Corporate networks in Anglo-Saxon countries have diametrically

different characteristics than their counterparts in continental Europe or Asian countries

(Clarke, 2016;Fligstein and Freeland, 1995). Due to the different ownership structures and

nature of companies, corporate networks may perform various functions, hence divergently

determining the approach of a company’s owners or managers to building network

relationships.

PAGE 948 jCORPORATE GOVERNANCE jVOL. 22 NO. 5 2022

This study focuses on corporate networks in the context of the Polish model of corporate

governance. This model emerged as the result of the transition reforms in the 1990s

(privatization, development of a financial market, legal reforms and enhancing institutional

order) and the harmonization process with the European Union (Aluchna, 2009). Its main

features are:

䊏a two-tier board of directors (the rights of the management board and the supervisory

board are clearly separated);

䊏a significant concentration of ownership (the main agency conflict is between majority

and minority shareholders rather than between management and shareholders,

Campbell et al., 2009);

䊏the substantial involvement of financial institutions; and

䊏the lack or weak role of the stock market as a corporate control body (what resembles

the “insider” corporate governance model, see Stephen and Backhaus, 2003).

The main purpose of this study is to test the relationship between the position of a listed

company in its corporate network (which potentially provides access to the resources of

other network participants) and the company’s performance and resilience to risk. The

focus is on a company’s IDs and interlocking capital. The research uses an approach that

integrates the theories of social network analysis (SNA) with corporate governance theory,

with a special focus on resource dependences. Discovering how board interlocks impact

company performance and its strategic risk should contribute to a better understanding of

the contemporary role of directors in Central and Eastern European corporate governance

models. This clarificationshould then contribute to corporate practices’ improvement.

The remainder of the paper is organized as follows. Section 2 presents the research model

with hypotheses formulated on the basis of theoretical considerations. Section 3 identifies

the sample selection process and data sources, while Section 4 describes the testing

method and measurement tools for the variables in the research model. Section 5 presents

an analysis of the results and hypothesistesting; Section 6 discusses the research findings.

The paper concludes with a discussion of the research limitations in Section 7 and a

summary of final conclusions in Section8.

2. Conceptual framework and development of hypotheses

2.1 Corporate network and network position

A company’s success is determined not only by its internal resources but also by the

external resources it can access. From this perspective, it seems crucial for a company to

develop strategic external relationships, including network ones. Both resource

dependency theory (Pfeffer and Salancik, 1978) and social capital theory (derived from

the literature on social structure and network formation, Coleman, 1988;Portes, 1998)

analyze grounds, interdependencies and outcomes of such external relations. Resource

dependence theory (RDT) (Pfeffer and Salancik, 1978) recognizes the problem of

depending on external resources that are critical for a company’s survival but controlled by

external actors, while social capital serves as a powerful concept for understanding the

emergence, growth and functioning of network linkages (Tsai, 2000, p. 21) that provide

access to external resources.

RDT views corporate boards as a critical link between the firm, its environment and the

diverse resources on which a company depends. To bond with the most beneficial

resources, firms structure membership on the corporate board on this basis (Booth-Bell,

2018). Board members become a particularly valuable resource as they very often

participate in an ID; a special typeof corporate network such as that occurs when a person

affiliated with one organization sits on the board of directors of another organization

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