How do directors’ effort and firm efficiency influence performance of a diversified firm?

Abstract

Studying how boards contribute to firm performance and examining implementation costs associated with diversification strategy are domains of growing interest to strategy scholars. We integrate these incipient literatures to examine the role of Peer Independent Executive Directors’ (PIED) effort in improving the performance of diversified firms. Using a longitudinal sample of US firms, we show that the PIED efforts are progressively beneficial for firm performance with successive increases in diversification levels, irrespective of diversification type. While we also theorized that the benefits of PIED efforts are greater for firms with lower benchmarked efficiency, we find results to the contrary. We contribute to both corporate governance and diversification research by highlighting the role of director domain expertise and effort in improving firm performance.