The coevolution of board interlock networks and corporate strategic actions

Abstract Research Summary Studies on board interlock networks are divided into two streams, one examining their dynamics; the other, their consequences. We propose that both phenomena—board interlock dynamics and consequences—are interdependent. Applying structuration theory, we explain and empirically demonstrate how firms' corporate strategic actions (specifically, acquisitions and divestitures) influence the creation and dissolution of different types of board interlock network ties and how these interlock ties, in turn, influence firms' corporate strategic actions. Integrating the two research streams, we complement corporate governance literature by demonstrating how corporate strategic actions and certain types of board interlocks coevolve. We contribute to theory on strategic networks by explaining coevolution through a structuration theoretical lens. Lastly, we illustrate methodological advances by using multiplex stochastic actor‐oriented models to analyze coevolution processes. Managerial Summary The dynamics of board interlock networks—networks resulting from executive and non‐executive directors serving on multiple boards—and the consequences of such networks have been treated as disjunct topics in prior research. We argue and show empirically that certain types of a firm's board interlocks and its corporate strategic actions (specifically, acquisitions and divestitures) are mutually dependent. Applying network analysis to a longitudinal sample of large German firms, we find that firms adapt their actions to the actions of those firms they have directed interlocks with. Vice versa, corporate strategic actions influence the creation and dissolution of board interlocks. Our findings suggest that the dynamics of board interlock networks play a more prominent role in firms' corporate strategic decisions than commonly assumed.