Diversification and performance in the hotel industry : do board size and family representation matter?

Abstract

Purpose - This study aims to empirically examine the relationship between industrial diversification and firm performance and the moderating effects exerted on that relationship by board size and family representation on the board. Design/methodology/approach - Secondary financial data were collected for hotel firms listed on the Hong Kong Stock Exchange during the period 2005-2016. Subsequently, a bivariate correlation and a fixed-effects panel regression analysis were performed on the data. Findings - The empirical results showed that diversification positively influenced firm performance until firms reached an optimal level of diversification (0.34); beyond that level, the effect was negative. In addition, firms with a larger board tended to show better performance when the level of diversification increased from medium to high, and firms with lower family representation on the board tended to exhibit better performance when the level of diversification increased from low to medium. Practical implications - Theoretical and managerial implications are suggested in terms of balancing the size of a firm’s board and with regard to family representation on a board from the perspectives of resource dependence theory (RDT) and socioemotional wealth (SEW), the diversification of hotel firms and future research. Originality/value - A limited number of studies have considered diversification as a corporate-level strategy in the hospitality field and in the unique context in which a service-oriented economy is dominant, such as in Hong Kong. The role of board composition on the diversification–performance relation has rarely been investigated theoretically and empirically. Apart from providing managerial implications for corporate governance, this study also offers theoretical generalizability, from the perspectives of RDT and SEW, to examine the moderating roles of board size and family representation on the diversification–firm performance relation.