The dark side of board political capital: Enabling blockholder rent appropriation

Resource dependence theorists argue that boards of directors with political capital can benefit focal firms by reducing uncertainty and providing preferential resources. Here, we develop theory regarding the downside of board political capital. The problem of principal-principal agency is evident in many parts of the world, and we argue that board political capital can further exacerbate it by enabling large blockholders to undertake more appropriation of firm wealth. Further, we explore how this enabling effect is moderated by ownership-, industry-, and environment-level contingencies. We find empirical support for our arguments using 32,174 directors in 1,046 Chinese listed firms over the period 2008-2011. Our study sheds light on new ways in which resource dependence and agency theories can be integrated to advance the extant research on board governance and corporate political strategy.