Is Board Capital a Double-Edged Sword? New Entry Threats and Firm Performance: On Examining the Moderating Role of Board Capital

Abstract

A significant part of the fast-moving dynamics in the high-tech industries is due to the high rate of new entry in the form of entrepreneurial ventures. Leveraging a novel measure of new entry threats using text mining, we test the conjecture that threats from new entry lead to deterioration in operational performance. In addition, we hypothesize that the relationship is moderated by corporate board capital, a proxy of the board’s ability to leverage outside resources. We distinguish board capital breadth, measuring the diversity or heterogeneity of the board’s social ties, from board capital depth, or the embeddedness of the board in the focal firm’s industry. Our evidences show that a higher level of new entry threats indeed leads to an incumbent’s performance deterioration. Interestingly, we find that the moderating effect of board capital depends on its nature: particularly, board capital breadth mitigates the negative impact of new entry threats, while board capital depth strengthens the negative relationship between new entry threats and firm performance. We discuss the implications for research and practices.