Social distinctions of directors and firm performance

Abstract

Purpose This paper aims to examine the effects of the social distinction of company directors on firm performance. Design/methodology/approach The social distinction of company directors adds to the firm’s reputation, allowing the firm to access resources and privileges. The indicators of social distinction this study uses are the prenominal titles of directors in Malaysian companies. As Malaysian companies are known to have directors with political connections and the prenominal titles can be intertwined with these connections, to ascertain the effects of social distinction on firm performance, this study examines whether social distinctions proxy and complement political connections in improving firm performance. This study uses Tobin’s Q (TQ) for longer-term performance and gross sales for current-year performance. Findings This study finds evidence to suggest that the impact of higher-order titles on Tobin’s Q and sales is greater in politically unconnected firms than in connected firms. This study also finds evidence to suggest that higher-order titles amplify the effect on Tobin’s Q in politically connected firms, whereas lower-order titles amplify sales, both moderated by firm-age. The findings shed light on the mediating variables that contribute to the above, and are robust for alternative performance measures, and account for endogeneity concerns. Research limitations/implications The results are generalisable only to countries where social distinctions are of significance. Practical implications Future research on political connections should consider social connections that affect firms. Also, such research should prompt the awarders of titles to prohibit the use of titles for pecuniary motives to minimise market imperfections. Originality/value Adding to the prior literature on the characteristics of directors and firm performance, this study shows that the social distinctions of directors do matter.