Top management teams’ social capital in Taiwan: The impact on firm value in an emerging economy

Abstract

Purpose

The paper aims to examine the contributions of top management teams’ (TMTs) social capital to the creation of business value.

Design/methodology/approach

Least‐squares regression is used to estimate the relationship between TMT social capital and Tobin's Q, while controlling for other firm‐ and industry‐specific explanatory variables.

Findings

The empirical results show that it is TMT extra‐business group (but not intra‐business group) directorate ties that are viewed as valuable strategic assets by the marketplace, and the benefits of extra‐business group directorate ties mainly come from the relationships’ greater prominence, but not from the relationships’ wider span or better position.

Research limitations/implications

Past research has tended to focus on “who executives are” – their background, personality, etc. Since the results show that executives’ extra‐business group social capital is strategically valuable, future research should take note that “whom executives know” – i.e. their social capital – is equally relevant to firm value.

Practical implications

The prominence and prestige measures of a TMT's extra‐business group network can be used by managers, external analysts and investors to assess to what extent firms are capable of leveraging relationships with other firms, and thereby better predict future firm performance and value.

Originality/value

This study contributes to the literature by investigating the differential effects of TMT intra‐ and extra‐business group directorships on firm values. Evidence from the present study may serve as a step toward understanding the role of TMT social capital in creating potentially valuable intangible assets in emerging economies dominated by business groups.

Citation

Young, C. (2005), "Top management teams’ social capital in Taiwan: The impact on firm value in an emerging economy", Journal of Intellectual Capital, Vol. 6 No. 2, pp. 177-190. https://doi.org/10.1108/14691930510592780