Boards and diversification strategy: evidence from the Spanish savings banks sector

Abstract

When executives seek to satisfy their need for prestige and status through long-term strategic decisions that increase the size of the company -such as corporate diversification- but do not improve the firm’s performance, agency costs might appear. Thus, the current work aims to responding the following question: does the corporate governance of an organization influence its diversification strategy? Considering that most research to date has focused on the governance structure of large public limited companies, we considered it would be useful to centre our study on organizations lacking alienable property rights and with an allocation of decision rights decided by law -this is the case of the Spanish savings banks. The results obtained show that board size, number of meetings, and ROE are positively associated with diversification.