Research Article
The Effect of Environmental Uncertainty on Board Composition
1 Sogang University, 2 Kyungnam University
Published: January 2007 · Vol. 36 No. 7 · pp. 1679-1705
Full Text
Abstract
Board of directors has been doing jobs as a controller, a service provider and a resource provider. However, most of the studies on a board of directors have been focused on the role as a controller to handle agency problem, so it has not been enough understanding about overall function of board of directors and even it has not been concluded constantly whether a board of directors can handle the agency problem or not. Therefore, in order to solve the inadequacy, resource dependence theory can be adopted to explain the functions of a board of directors. The resource dependence theory recognized the role of board of directors as a mechanism for changing environment. In other words, the members of board provide needed resources to their organization or help the organization acquire needed resources by using their personal link or networking according to the theory. This study attempts to find out how task environmental uncertainty, general environmental uncertainty and resource retention level affect the compositions of a board of directors in the resource dependence theory. In regression analyses for this study, some factors are considered and controlled as the determinants for the composition of board of directors, such as firm size, firm age, powers of a block holder, board size, stock market, and stock market regulation. For the analysis, 82 questionnaires are collected from the members of boars of directors in 118 Korea companies, and among them, 78 questionnaires from 45 companies are used as sample data due to the analysis suitability. According to the result of the hypothesis test, that perceived task environmental uncertainty has a positive effect on business expert proportions, and the general environmental uncertainty also has a positive effect on the community influentials. however, the resource retention level has no meaningful influence on the composition of a board of directors and the support specialist has no relation with independent variables. This study shows that firms change their composition of boards of directors in compliance with firms' environmental changes by looking over the environmental uncertainties and the level of resource retention. It is consistent with the idea of Zahra and Pearce(1989). Especially, this study measures environmental uncertainty perceived by members of boards of directors and divides environmental uncertainty into task environmental and general environmental ones, and to avoid common method bias, the independent variables are measured differently with dependant variables. However, there are still some insufficiencies of this study. Above all more sample are needed to make more reliable results, and it needs the way to overcome the limitation of crossfunctional research. And also for more understanding this subject, It needs an additional study about business experts and recognition dimensions, such as complexity, dynamism and munificence, as a new norm to divide environmental uncertainty and to measure environmental uncertainty newly
