CEO-COB prestige distance and change in diversification: Exploring a curvilinear relationship

This study investigates how the prestige distance between a new chief executive officer (CEO) and the chairperson of the board (COB) can influence changes in the firm’s level of diversification. We draw on social comparison theory and activity theory to argue that the prestige distance between a CEO and COB alters the interaction and communication between the two leaders, and accordingly influences the firm’s ability to change its diversification posture. We test our hypotheses on a dataset of 135 firms and find that the prestige distance in CEO-COB dyads has a U-shaped relationship with the change in the firm’s level of diversification. Our results reveal that low CEO-COB prestige distance, and to a lesser extent high CEO-COB prestige distance, creates conditions for greater changes in the firm’s level of diversification. Further, we find that this U-shaped relationship is more pronounced when the CEO-COB dyad has greater age differences and flattens when the dyad shares age similarity.