This article uses the US freight railroads, which underwent enforced restructuring due to increased competition following deregulation, to study the impact of board diversity on strategic change, where board diversity is measured from a stakeholder perspective. CEO human capital is also taken into account. By analyzing with panel data methodology a sample including 15 US Class I railroads covering a 20-year period from 1984 to 2004 and representing more than 90% of the railroad market, with a total of 190 observations, we find that strategic decisions are significantly influenced by both board composition and CEO human capital, but that boards exercise more influence in determining firms strategies. We find significant differences in the way directors influence restructuring decisions depending on their stakeholder status. Results indicate the importance of including measures of board composition reflecting diversity of interests in board research.
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The introduction of double-stacks dramatically reduced rail haul costs, making intermodal type of traffic competitive at distances of 500 miles or so, whereas previously rail could compete with trucks only at distances of about 700 miles.
Note that over the entire span of observation, the variable of labor downsizing is, on average, equal to 0.03 and takes average negative values for the years 1984 and 2004. This should not be a surprise, for despite the fact that most of the firms downsized their labor forces during these years, some firms increased their labor forces due to mergers in 1984 and there were some first waves of hiring people back in 2004. These mergers also explain the average negative value obtained for abandonment of lines in 1984.
Results from an unreported regression, where directors are classified by industry, indicate that this effect especially relates to directors from the natural gas sector, which obtains a highly significant positive coefficient. Cost reductions following deregulation in the natural gas sector come, in part, from important reductions in the scale of operations.
Additionally, for insight on what shapes the composition of the board, unreported analysis was conducted using regressions where the endogenous variable was the proportion of the different type of directors considered in this study and the explanatory variable was the lagged value of financial performance, taken as the ratio of operating revenue over operating costs. Results show that the proportion of consulting directors and the proportion of labor mediators increased with performance while the opposite result occurred with the proportion of employees, especially those with finance and economic backgrounds. This last finding may occur because poor financial performance may motivate firms to appoint directors with finance and economic background.
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I thank Marco Becht, Guido Friebel, Gerard McCullough, Alban Thomas, César Tenreiro and participants of the 26st Annual Congress of the European Economic Association (EEA), First Annual Corporate Entrepreneurship Workshop in EM Lyon Business School, 10th Annual Meeting European Economics and Finance Society (EEFS) and 10ème Conférence Internationale de Gouvernance à Montréal for helpful comments. I also thank two anonymous referees for their helpful comments that helped improve the quality of the article. All errors are mine. This project received financial support from a Marie Curie Early Stage Researcher Fellowship of the European Corporate Governance Training Network during a research stage at the European Center for Advanced Research in Economics and Statistics (ECARES), Université Libre de Bruxelles, Belgium.
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|US Class I railroads, 1984–2004|
|Railroad (Abbreviation)||Years observed in the data|
|Atkinson, Topeka and Santa Fe (ATSF)||1984–1995|
|Burlington Northern (BN)||1984–1995|
|Burlington Northern and Santa Fe (BNSF)||1998–2004|
|Chicago Northwestern (CNW)||1984–1994|
|Consolidated Rail Corporation (CRC)||1987–1998|
|CSX Corporation (CSX)||1988–2004|
|Denver, Rio Grande Western (DRGW)||1984–1993|
|Grand Trunk Western (GTW)||1984–2001|
|Illinois Central Gulf (ICG)||1984–2001|
|Kansas City Southern (KCS)||1984–2004|
|Norkfolk Southern Corporation (NSC)||1988–2004|
|SOO line (SOO)||1984–1988, 1997–2004|
|Southern Pacific (SP)||1984–1988, 1993–1996|
|Union Pacific (UP)||1984–1985|
|Union Pacific Missouri Pacific (UPSYS)||1987–1996|
|Union Pacific Southern Pacific (UPSP)||1997–2004|
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Padilla-Angulo, L. The impact of board diversity on strategic change: a stakeholder perspective. J Manag Gov 24, 927–952 (2020). https://doi.org/10.1007/s10997-019-09492-y
- Defensive and strategic restructuring
- Corporate governance
- Board diversity
- CEO characteristics
- Panel data