Industrial Marketing Management 90 (2020) 14–29

Contents lists available at ScienceDirect

Industrial Marketing Management

journal homepage: www.elsevier.com/locate/indmarman

Board structure and firm capability: An environment-embedded relationship T

between board diversity and marketing capability
⁎
Wenbin Suna, , Zhihua Dingb, Joseph Pricec
a
Helzberg School of Management, Rockhurst University, 1100 Rockhurst Road, Kansas City, MO, USA
b
School of Management, China University of Mining and Technology, Xuzhou, Jiangsu, China
c
College of Business, Belmont University, Nashville, TN, USA

A R T I C LE I N FO A B S T R A C T

Keywords: The role of the firm’s top governance team, the board, is largely missing in the capability literature. This paper
Board diversity takes the first step to link board diversity, one of the most critical traits of the board, to marketing capability.
Marketing capability Further, this relationship is embedded into a contingency-based model involving a set of environmental factors,
Environmental munificence munificence, turbulence, and competition intensity. This model illustrates how the internal top governance traits
Environmental turbulence
and external factors may jointly and dynamically affect firm competency. The empirical results show that board
Competition intensity
diversity significantly increases marketing capability. This effect is stronger when a firm faces unfriendly market
situations characterized by low munificence, high turbulence, and intensified competition. This study generates
meaningful theoretical implications for marketing capability-building of business firms, especially in the busi-
ness-to-business (B2B) settings in which reciprocal organizational engagements are more emphasized. It also
advances firm governance theories and business environment studies, and provides useful guidelines for man-
agerial practices.

1. Introduction Tsou, & Ching, 2011). However, the existing understanding of MKCAP-
building has two evident limitations. First, although the market-side
Within the marketing management domain, firm capability of function is one of the strategic modules of the firm and its capability-
managing its markets is a subject that has captured strong research building will surely benefit from its tactical activities such as inter-
interests because of its prevailing influences on firm consumer metrics acting with customers, channel members, and partners, its formation
such as new product offerings, satisfaction, market positions (Chang, may be fundamentally driven by the top governance group that not
Park, & Chaiy, 2010; Mithas, Krishnan, & Fornell, 2005), and financial only determines the firm’s development paths that guide the firm’s
outcomes such as profitability, revenues, and shareholder value market development directions but also practically creates the struc-
(Angulo-Ruiz, Donthu, Prior, & Rialp, 2014; Mishra & Modi, 2016; tural configuration of marketing departments by appointing key man-
Xiong & Bharadwaj, 2013). Marketing scholars have explicitly indicated agement positions or setting specific constraints (García-Meca, García-
that firm capability stands for one of the essential instruments that Sánchez, & Martínez-Ferrero, 2015). Therefore, the endeavors of the
managers can use to build and secure a firm’s long-term advantages firm for building a strong marketing competency at the strategic unit
(Vorhies and Morgan, 2005; Wilden & Gudergan, 2015). Researchers level may be driven by the top governance team that prioritizes the
share unanimous opinions that firm capabilities such marketing cap- firm’s resource configuration as well as directs the firm’s business or-
ability (MKCAP hereafter) are not simply acquired from external enti- ientations. For example, in B2B relationships, firms will be highly
ties. Rather, these capabilities are built through long-term learning sensitive to the preferences of key clients and thus they are motivated to
processes that occur at the functional units and their supporting entities take the whole firm efforts to build more capable marketing units tai-
(Day, 2011; Kale & Singh, 2007; Vorhies & Morgan, 2005). This picture lored to these preferences (Crespin-Mazet & Ghauri, 2007). This im-
is even more manifest in the business-to-business (B2B) relationships portant mechanism, however, is largely absent in the literature. Second,
because firms and their business customers are motivated to create, although environmental factors are often modeled with marketing
maintain, and refine co-developmental interactions that lead to con- strengths for the analysis of their performance implications, little work
tinuous improvement of marketing skills and planning precision (Chen, goes beyond examining their parallel influences on firm outcomes onto

⁎
Corresponding author.
E-mail addresses: [email protected] (W. Sun), [email protected] (Z. Ding), [email protected] (J. Price).

https://doi.org/10.1016/j.indmarman.2020.06.010
Received 11 August 2019; Received in revised form 13 May 2020; Accepted 18 June 2020
Available online 06 July 2020
0019-8501/ © 2020 Elsevier Inc. All rights reserved.
W. Sun, et al. Industrial Marketing Management 90 (2020) 14–29

a new stage that explicitly considers environmental factors as the key essential for creating firm capabilities (Ararat, Aksu, & Tansel Cetin,
antecedents of building MKCAP. This knowledge vacancy indicates a 2015; Midavaine, Dolfsma, & Aalbers, 2016). Specifically, MKCAP is a
significant empirical oversight of the long-held notion that marketing firm element at the frontier between the firm’s internal and external
skill sets are the connection between the firm and the external world, environments (Lavie, 2006). Thus showing the BODIV’s influence on
and thus they should be highly influenced by those outside factors MKCAP validates the theoretically long-held but not empirically con-
(Mishra & Modi, 2016). firmed notion that the board not only guides a firm’s internal man-
The popular upper echelon theory describes that the board serves as agement but also directs the firm to better cope with the environment.
the delegated representative of the firm’s shareholders and it is desig- Additionally, the proposed moderating effects of environmental factors
nated to supervise the firm (Bjornali, Knockaert, & Erikson, 2016). The enhance the understanding of BODIV and MKCAP by creating a com-
board has received notable emphasis in literature regarding its effects prehensive and meaningful model that simultaneously considers top
on firm outcomes (e.g., Erhardt, Werbel, & Shrader, 2003; Harris & leadership profiles and external conditions related to firm MKCAP
Raviv, 2010; Zona, 2014). In particular, board diversity plays a pivotal changes. This contingency-based view yields richer insights about how
role in this theory stream. It reflects the heterogeneous background the two areas that are practically close but theoretical lack connections
characteristics of the board members and has been confirmed to affect may have joint effects on firm capability through both internal and
firm performance measures such as profit, firm value, and social wel- external dimensions. Our research is also designed to provide useful
fare (e.g., Carter, Simkins, & Simpson, 2003; Harjoto, Laksmana, & Lee, practical implications for firms to build better MKCAP via top-down
2015; O’connell and Cramer, 2010). This recognition of the importance influence flows that are realized by the enhanced boardroom diversity.
of board diversity (hereafter referred to as BODIV), however, fails to Further, this research, with the supporting knowledge of the environ-
disclose whether it can drive firm capability. Exploring this missing link mental factors, should produce important guidelines for firms to im-
is critical because capability, rather than performance, may be the prove their coping mechanism for external challenges by adapting their
immediate result of governance structure. Board characteristics are governance structure. In addition, our research has potentials to create
unlikely to directly change performance without first shaping the firm’s knowledge for other marketing management aspects such as resource
managerial functionality such as capabilities. Motivated by these configuration and corporate coordination.
thoughts, this paper takes the first attempt to theoretically connect This paper is organized as follows: after the introduction, we review
BODIV and firm MKCAP and empirically test this relationship. Along the literature and build the theoretical framework to generate a set of
with that, we incorporate a set of environmental factors, munificence, hypotheses. Next, we discuss the data sources, measure methods, and
turbulence, and competition intensity to examine the relationship be- the empirical analysis approaches; this is followed by the results dis-
tween BODIV and MKCAP in a moderated framework. This model ex- cussion and implications for theories and practices.
plores how the inner association of board and marketing can differ
under varying outside circumstances. We collect a large set of sample 2. Theoretical foundation and hypotheses development
firm data and use multiple robust analytical methods to examine the
proposed model. 2.1. Board and BODIV
Answering the research questions formulated in this study is ex-
pected to generate a set of key contributions to theories and also pro- The objectives of the board. The upper echelon theory views the
vide useful guiding implications for business practitioners. These in- boardroom as the entity that represents the owners and thus it serves as
tended contributions and implications serve as the essential reasons for the connection between the shareholders and firm management
developing this research. Foremost, the link between board character- (Alazzani, Hassanein, & Aljanadi, 2017; Boyd, Haynes, & Zona, 2011;
istics and MKCAP is particularly meaningful for B2B marketing settings Filatotchev & Bishop, 2002). Four essential goals underpin this general
because business clients are more attentive to firms’ structural changes tenet. First, the board as an entity is entitled to solve the prevailing
in governance than final consumers (Hatton et al., 2017). Thus, clar- principal-agent problems in firm governance (Lynall, Golden, &
ifying the role of BODIV will give researchers in this area a novel and Hillman, 2003; Young, Peng, Ahlstrom, Bruton, & Jiang, 2008). Man-
clear guideline for understanding the fundamental driving force for agers may pursue personal goals and interests at the cost of the firm’s
gaining marketing-side strengths. More importantly, business organi- welfare, and thus the board is the mechanism to minimize this threat.
zational relationships are more likely to have multi-departmental en- Second, the individual board member selection is a result of share-
gagements as well as leadership teams’ interactions. This nature of B2B holder decisions based on the shareholders’ power and interests
firms makes our study particularly impactful because the board re- (Combs, Ketchen, Perryman, & Donahue, 2007). Shareholders may
presents the highest governance echelon and its influences on MKCAP differ significantly on these dimensions, so each board member may
will vividly demonstrate the fundamentals of capability-building that represent the interests of certain stakeholder groups. Thus, the dele-
involves the organizational influences beyond the functional units such gation effect of the entire board in fact is a combination of hetero-
as marketing. Further, our research will be one of the very few studies geneous and sometimes skewed representations of the stakeholders
that aim to bridge corporate governance theories and firm capability (Miller & del Carmen Triana, 2009). Third, the objective of the board is
theories, and it is also the first attempt to link board composition to one not limited to regulating management teams. A more fundamental goal
of the most important firm capability types, MKCAP. Understanding of this group is to support the development of the entire firm by ex-
this relationship significantly broadens the horizons of board functions erting top governance influences (Bear, Rahman, & Post, 2010; Miller &
that have previously been directly linked to firm financial and social del Carmen Triana, 2009). In this sense, the board is expected to not
outcomes but have neglected the authentic role of the board for con- only supervise the internal management conditions but also track firm
structing firm capabilities. It is this role of the board that makes its environmental conditions to make timely board decisions. Fourth, the
performance effects possible because capabilities are the essential dri- board’s objective goes well beyond the evaluation of the firm’s past and
vers and facilitators for realizing firms’ financial goals (Mishra & Modi, current performance, as more importantly, it emphasizes the assess-
2016; Xiong & Bharadwaj, 2013). More fundamentally, our research ment of the forward-looking propensity of the firm that matches the
aims to extend the knowledge scope of capability-building that has been long-term version of shareholder value (Callahan, Millar, & Schulman,
limited to the strategic unit and functional department levels. None of 2003). This objective determines that the board will be particularly
the extant studies has traced the determinants of firm capability to interested in identifying the firm factors that may lead to sustained
board characteristics. Yet, this exploration is necessary because the competitive advantages (Murphy & McIntyre, 2007).
board might play a foundational role in establishing the architectural The functions of the board. Given the above-mentioned objectives,
and structural formation of firm assets, resources, and roles, which are the board exerts important power on firm management and its related

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W. Sun, et al. Industrial Marketing Management 90 (2020) 14–29

capacities and capabilities. Previous studies have identified a wider performance gain will be realized unless BODIV can shape a firm’s
array of functions of the board. In general, these functions can be capabilities. Therefore, capabilities may be the mediating agent be-
summarized into three main themes. The first theme is the resource- tween BODIV and firm performance. This effect deserves notice and
dependence view. In this domain, the board is considered as an entity becomes the focus of this study.
that has intensive resource connections with outside stakeholders or
partners, as board members may come from specific industries, and/or 2.2. BODIV and MKCAP
hold key positions in business, professional, or regulatory organiza-
tions, and control abundant informational, financial, and human re- Firm capability scholars consider the firm as a bundle of resources
sources (Hillman & Dalziel, 2003). These resources can be leveraged by that are deployed at various skill levels specific to each firm. In this
the board to the firm and facilitate the firm’s operations (Casciaro & conceptualization, a firm constitutes its capability set that eventually
Piskorski, 2005; Dalziel, Gentry, & Bowerman, 2011). In addition, the determines the firm’s performance (e.g., Barney, 1991; Feng, Morgan, &
resource-dependence function is enhanced by the integration and co- Rego, 2015). Firm capability is deeply embedded in the firm’s opera-
ordination within the board that seeks the optimal resource config- tions and cannot be simply acquired from other sources (McGrath,
uration that best satisfies the firm’s needs (Miller & del Carmen Triana, Medlin, & O'Toole, 2019). Rather, a firm’s capability is built through
2009). This within-board resource sharing and optimization constitute the firm’s learning processes that integrate both management logics as
an important competitive advantage for the firm. The second theme well as the interactions with the environment (Calantone, Cavusgil, &
involves the consulting-guidance theory. Under this theme, the board is Zhao, 2002). For example, in the field of B2B marketing, this nature is
looked as the top governance group that is tasked to support the firm by especially evident for two reasons. First, firms will have direct con-
providing consulting opinions and key guidelines for the firm’s opera- nections and interactions with their business clients and thus they are
tions (Heemskerk, Heemskerk, & Wats, 2017). While the resource-de- motivated to optimize and cultivate the relationships via creating spe-
pendence theory has a greater focus on the board’s connections with the cially designed mechanisms and capability sets (Vesalainen & Hakala,
external world, the consulting-guidance theme is tailored to internal 2014). Second, the organizational transactions between business part-
management support. In this role, the board will not only be involved in ners incur more departmental involvements across the leadership
corporate goal-setting but will also oversee the firm’s functional de- hierarchies and thus are more likely to trigger organizational learning
partments’ development paths and direct the firm to be in line with the functionalities that facilitate capability-building (Zhang, Jiang,
value maximization for the shareholders (Campbell et al., 2012). The Shabbir, & Du, 2015). This special nature of firm capability enables it to
third theme that pertains to the board’s function is the signaling effect. be one of the strongest sources of the firm’s long-term competitive
Unlike the previous two functions that are directly linked to managerial advantages because it precisely fits the valuable, rare, inimitable, and
outcomes, the signaling function of the board involves the imagery non-substitutable (VRIN) criteria of firm assets leading to superior
assets of this group as well as the whole firm (Bear et al., 2010; performance (Lin & Wu, 2014). Scholars in this area further suggest that
Connelly, Certo, Ireland, & Reutzel, 2011). The board’s composition, firm capability is better viewed by examining specific functional areas
behaviors, and ethics are under the eyesight of an array of stakeholders such as marketing, operations, innovation, and supply chain (Dutta,
including customers, partners, regulatory agencies, and employees (in Narasimhan, & Rajiv, 2005; Krasnikov & Jayachandran, 2008; Nath,
addition to shareholders). A board’s characteristic that is positively Nachiappan, & Ramanathan, 2010; Vorhies & Morgan, 2005; Wu,
interpreted by stakeholders will likely increase their willingness-to- Yeniyurt, Kim, & Cavusgil, 2006). This approach not only recognizes
support (Bear et al., 2010; Grosvold, Brammer, & Rayton, 2007). For the heterogeneous nature of a firm’s functional areas and thus strongly
example, improving the gender equality in the board motivates the deepens the understanding of firm capability toward a more precise and
female employees to generate higher contributions (Dezsö & Ross, more reality-based stage but also broadens the reach of firm capability
2012). horizontally to other strategic areas and vertically to upstream and
Board composition and diversity. Although the objectives and func- downstream management levels (Helfat & Winter, 2011). Among all
tions of the board are unanimously recognized, they have not been the firm capability types, MKCAP has received a particular emphasis be-
main interest of business researchers. Instead, the board composition cause marketing is a firm function bridging the internal operations and
has captured the key focus because forming the board requires intensive external demands (Chen & Wu, 2011; Krush, Sohi, & Saini, 2015). The
strategic thinking that will influence the governance outcomes (Harjoto capability in this area is the key for the firm to gain financial revenues
et al., 2015; Hillman, 2015). BODIV is defined as the heterogeneous from the markets and is one of the major focuses of firm management
background dimensions of the board members (Bernile, Bhagwat, & and shareholders (Chang et al., 2010; Trainor et al., 2011). Further,
Yonker, 2018). These dimensions come from two major categories. The MKCAP has been found to have the strongest power in protecting the
first includes the observable dimensions such as gender, ethnicity, age, firm from threats because a firm with high MKCAP is able to create
and tenure in the firm. The second includes the less observable factors necessary operations and social complexity that suppress the imitation
such as work experience, professional background, and skills that come activities from competitors and thus sustain competitive advantages
as a result of holding specific positions in related organizations (Erhardt (Krasnikov & Jayachandran, 2008). Given this rationale, linking BODIV
et al., 2003). Previous researchers have either focused on certain single and MKCAP is of special importance because they are among the most
dimensions or comprehensively enclosed multiple dimensions into a critical factors that influence firm outcomes. However, to date, there is
composite diversity measure. In this paper, we follow the latter to in- little existing knowledge on this association.
clude an array of diversity dimensions because in business practice, all The above-mentioned theories jointly create a strong foundation for
the dimensions of the board members are presented simultaneously and developing the link between BODIV and MKCAP. This link can be il-
they produce impacts all together (e.g., Harjoto et al., 2015). Therefore, lustrated in four main areas. First, building MKCAP requires resource
the dimensions of board members are essentially inseparable. inputs. For example, finding a qualified marketing manager is a pre-
BODIV has been linked to a number of firm financial performance condition for the marketing department; industry insiders’ information
measures such as profitability (Campbell & Mínguez-Vera, 2008; Carter allows the firm to restructure marketing teams to cope with new si-
et al., 2003) and social impacts such as corporate social responsibility tuations; and relational ties with government agencies allow the firm to
(Bear et al., 2010; Rao & Tilt, 2016). The majority of the existing studies build quick responding mechanisms in its marketing function
suggest that BODIV provides the firm a positive support by performing (Germann, Ebbes, & Grewal, 2015; Song, Wang, & Parry, 2010). These
functions related to resource acquisition, firm strategic guidance, and needs for building MKCAP can be well-supported by BODIV. A high
firm image improvement (see the literature summary in Table 1). diversity board is found to improve resource acquisition such as human
However, a salient missing logic is that it is unlikely that the talent, market information, and relational stocks, which reinforce the

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 W. Sun, et al.

Table 1
Literature Summary for Findings Related to Board Diversity.
Board Diversity Construct Outcome Variable (s) Sample Frame Findings Study

A composite index including gender, age, ethnicity, Stock return volatility, policy persistence, US public listed firms Board diversity reduces stock return volatility, enhances policy Bernile, Bhagwat, & Yonker
educational background, financial expertise, and financial and investment policies, innovation persistence, and leads to policies associated with lower financial (2018)
breadth of board experience efficiency, performance risk, and it increases innovation efficiency as well as performance
Diversity of gender, age, tenure, education R&D investment Fortune 500 firms Gender and education diversities increase R&D investment, while Midavaine, Dolfsma, &
tenure diversity decreases R&D investment Aalbers (2016)
Percentage of female directors and independent directors Tobin’s Q and ROA Listed companies in 47 Gender and independence diversities are positively associated with Terjesen, Couto, & Francisco
countries Tobin’s Q and ROA (2016).
Percentage of women and foreigners in the board Tobin’s Q Listed banks in nine countries Percentage of women is positively associated with Tobin’s Q; García-Meca, García-
percentage of foreigner is negatively associated with Tobin’s Q Sánchez, & Martínez-Ferrero
(2015)
Diversity of gender, age, race, director experience, Firm corporate social responsibility Public listed firms Board diversity positively affects corporate social responsibility Harjoto, Laksmana, & Lee
tenure, director power, and expertise (2015)

17
Diversity of gender, age, education, nationality, Market-to-book,ROE Large and liquid firms in the Mixed findings of the relationships, but in general, board diversity Ararat, Aksu & Tansel Cetin
independence Bourse Istanbul increases firm performance (2015)
Diversity of gender and ethnic profile Corporate information environment S&P 1500 firms Board diversity increases the firms’ information transparency Upadhyay & Zeng (2014)
Diversity of gender, race, and outside directors Institutional strength and technical strength Publicly traded Fortune 500 Gender and race diversities are positively associated with Zhang (2012)
companies institutional strength and technical strength
Diversity of director resources and the number of women Firm reputation and strengths Health care companies A greater number of women in the board positively and Bear, Rahman, & Post (2010)
on the board significantly increases institutional and technical strengths, and
reputation
Gender and racial diversities Innovation and firm reputation Fortune 500 firms Both gender and racial diversities increase innovation; racial Miller & del Carmen Triana
diversity also increases firm reputation (2009)
Percentage of women on the board Firm value Non-financial firms listed on Percentage of women on the board is positively and significantly Campbell & Mínguez-Vera
the continuous market in related to firm value (2008)
Madrid
Board members’ age, insiders, gender, minority status Firm value Fortune 1000 firms Board diversity is generally found to positively drive firm value Carter, Simkins, & Simpson
(2003)
Ethnic and gender representation on boards ROA and ROI Large public companies in Board of director diversity is positively associated with both ROA Erhardt, Werbel, & Shrader
various industries and ROI (2003)
Industrial Marketing Management 90 (2020) 14–29
W. Sun, et al. Industrial Marketing Management 90 (2020) 14–29

marketing functions (Erhardt et al., 2003; Miller & del Carmen Triana, MKCAP (Boyne & Meier, 2009). Nokia and Kodak are salient examples
2009). This resource support provided by BODIV originates from the indicative of this rationale.
wider connections and differential backgrounds of the diverse board In addition to this, the literature also points out that the possible
members and thus creates a useful base to leverage resources to the firm negative impacts of specific environmental conditions can be addressed
(Bear et al., 2010). Second, the board is tasked to calibrate the firm’s by the firm’s possession of certain assets or traits. For example, a firm’s
operations (Bernile et al., 2018; Terjesen, Couto, & Francisco, 2016). management functional heterogeneity gives the firm a better position to
Among these operations, marketing is a major focus. For one thing, the deal with environmental uncertainty (Auh & Menguc, 2005); market
customer market is the emphasis of the shareholders because the future orientation helps the firm neutralize competitor threats (Cadogan, Cui,
cash flow largely relies on market performance (Anderson et al., 2004). & Li, 2003). Therefore, it is necessary to look for possible moderators in
Additionally, the marketing function’s effectiveness can trigger a chain order to understand specific situations in which environmental chal-
effect in the upstream B2B value chain sectors, such as in production lenges are no longer effective. The current study explicitly aims to
and procurement (Samiee, 2008). Thus, the board has a particular in- bridge these gaps by formulating the moderating roles of a set of en-
terest in effectively directing marketing development paths to optimize vironmental dimensions.
these business relationships (Tuggle, Schnatterly, & Johnson, 2010). A Regarding the selection of environment dimensions, there is a
diverse member group is found to more precisely understand the needs popular adopted set of environmental dimensions, including munifi-
of the firm and to provide more accurate guidance for the firm so that it cence, turbulence, and competition intensity (e.g., Ang, 2008; Gligor,
can advance its service levels to customers (Bear et al., 2010; Carter Esmark, & Holcomb, 2015). This set of dimensions is a result of a
et al., 2003). Third, the ability of the marketing function, such as comprehensive investigation of an intensively long list of factors, and
manifested in the sales teams or the supporting groups, is highly de- achieve a balance between inclusiveness and actionability, and thus
pendent on human involvement. Motivated employees are found to becomes a preferred framework for understanding firm behaviors and
more effectively perform selling and services that lead to customer outcomes (Tsai & Yang, 2013).
satisfaction (Ahearne, Mathieu, & Rapp, 2005). BODIV plays an im-
portant role here because previous studies find that employees are in- 2.4. Environmental munificence, BODIV, and MKCAP
spired by the fair diversity of board representations and are more
willing to become involved in firm activities if a high degree of BODIV Environmental munificence measures the growth rate of an industry
is observed (Grosvold et al., 2007). This signaling effect further sup- (McArthur & Nystrom, 1991). High munificence in an industry in-
ports the marketing function by engaging other functional departments dicates the environment is supportive of further development and is
towards a better customer support capability (Verhoef & Leeflang, characterized as having abundant resources and easy-to-acquire assets
2009). Fourth, in addition to the resource level and consulting ad- to facilitate a firm’s operations (Goll & Rasheed, 2004). There is a sound
vantages, the high BODIV firm possesses a particular advantage re- theoretical basis that points to the relevance of munificence on firm
garding the within-board coordination and innovation. Bear et al. MKCAP. First, marketing requires a firm’s resource support to fully
(2010) find that a diverse board team is likely to configure the available reach its functionality. For example, a friendly environment provides
resources in a way that maximizes the utility and innovation outputs. abundant financial support for the sales team to experiment best-selling
These benefits will facilitate firm MKCAP because they allow the firm to protocols (Slater & Olson, 2000). In contrast, a low munificence en-
use the best practice to enhance customer relationships. For example, vironment restricts the firm’s freedom of launching alternative mar-
researchers illustrate that in the B2B firms, the optimized organiza- keting campaigns and may force the firm to adopt a suboptimal alter-
tional routines and enhanced innovativeness significantly support the native and thus harm the firm’s capabilities (Escribá-Esteve, Sánchez-
firms to build better skills to satisfy their key clients (e.g., Heirati & Peinado, & Sánchez-Peinado, 2009). Second, a low growth industry
Siahtiri, 2019; Theoharakis, Sajtos, & Hooley, 2009). With these theo- suffers problems such as talent churn to other high growth industries
retical logics, we hypothesize: (Ford & Wooldridge, 2012). This is particularly applicable in marketing
H1: BODIV will be positively related to firm MKCAP. sections because managers face more pressure to achieve market per-
formance due to the low environmental munificence (Slater & Olson,
2.3. Environmental dimensions and MKCAP 2000). Therefore, the marketing team cannot retain qualified human
resources to ensure management and service quality. Third, low mu-
The notion of firm capability illustrates that it is developed to help nificence often means that the customer markets reach the mature stage
the firm face the challenges of a fast-changing environment. However, in which the consumption pattern is stagnant (Beverland, 2005). This
this widely shared rationale raises an unanswered question: how is the condition creates special obstacles for the firm to improve MKCAP due
environment, in its different dimensions, related to firm capability? In to the established pattern. When BODIV is added to the framework, we
the literature, two opposite views exist in this direction. The first view expect its relationship will differ in a high versus a low munificence
suggests that the environment will enhance a firm’s capability (Argote environment. It is obvious that the resource support function of BODIV
& Miron-Spektor, 2011). For instance, unfavorable external conditions, may play a stronger role in low munificence industries because firms in
such as a high level of competition, will spur the firms’ initiatives for these industries place high demands on the board members to leverage
building stronger capabilities to cope with these adverse situations external resources, which means these resources may yield a higher
(Weerawardena, O'Cass, & Julian, 2006). Indeed, firms in those con- marginal effect in supporting marketing functions to improve MKCAP.
ditions will be more strongly motivated to improve their strategic ef- In contrast, in a high munificence environment in which the resource
fectiveness (Koka, Madhavan, & Prescott, 2006). availability is already abundant, the resource advantages of BODIV will
However, the first view suffers from one serious limitation: a firm not be as critical (Sirmon, Hitt, & Ireland, 2007). Externally, the board
that have initiatives or motives for changing itself does not necessarily members may bring in key insights about the markets and enable the
mean that the firm can achieve the goal, as an unfriendly environment marketing sectors to obtain timely and broader customer intelligence
incurs constraints and barriers that invalidate the firm’s endeavors (Miller & del Carmen Triana, 2009). BODIV thus will facilitate more in
(Madrid-Guijarro, Garcia, & Van Auken, 2009). This leads to the second a low munificence environment in which the firms are looking for not
view that supports an opposite direction, i.e. unfriendly environment only market opportunities but also new ways of satisfying customers
conditions may undermine firm capability, especially the marketing- (Gligor et al., 2015), which leads to BODIV’s higher power for enhan-
side competency (Slotegraaf & Dickson, 2004). For example, quick cing MKCAP. Thus we hypothesize that:
market trend shifts will soon make the firm’s marketing knowledge, H2: BODIV’s positive effect on MKCAP will be stronger in a low
skills, and assets obsolete and thus significantly reduce the firm’s munificence environment than in a high munificence

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W. Sun, et al. Industrial Marketing Management 90 (2020) 14–29

environment. older customers who constitute a significant portion of market perfor-

mance (Yuksel & Mryteza, 2009). Another example is the situation in
2.5. Environmental turbulence, BODIV, and MKCAP which a firm has to develop new sets of activities to cope with the
competitors’ promotional campaigns and has to drastically deviate from
Environmental turbulence reflects the uncertainty rates of an in- its best route and engage in unwillingly activities, such as price wars
dustry (Lichtenthaler, 2009). In this type of environment, business (Zhang, Jahromi, & Kizildag, 2018). This direction will not allow the
conditions may change quickly, and thus firms have a low possibility to firm to achieve ideal performance with reasonable inputs, leading to
predict the future. The shifting external conditions place significant inferior marketing effectiveness. In addition, intensified competition
challenges on the firm’s resource configurations (Wilden & Gudergan, also forces the firm to analyze an extended range of their rivals’ si-
2015). In the marketing sector, this effect is more severe because tuations that are often vague and hard to discern, and therefore de-
marketing is the firm function that is most tightly connected to the creases the firm’s controllability of the market situation, leading to less
external environment (Cadogan et al., 2003; Wilden & Gudergan, efficient marketing practices (Moorman, Du, & Mela, 2005). BODIV is
2015). Turbulent markets thus undermine the firm’s ability to better expected to more strongly support the firms in highly competitive in-
satisfy its customers, as they raise the challenge of knowledge acqui- dustries. First, as mentioned above, the relational stock of the diverse
sition (Lichtenthaler, 2009). For example, in a market with fast-chan- board members will be highly desired by the firms that face hard
ging customer preferences, the firms are not able to develop ideal skill competition (Bear et al., 2010; Miller & del Carmen Triana, 2009). The
sets that are consistently tailored to customer needs. In addition, relational connections of the top leadership team have been confirmed
Atuahene-Gima (2005) has explicitly noted that capabilities may dis- to be necessary resources for the firm to design and implement mar-
play a certain rigidity that resists changes. Also, Vergne and Durand keting campaigns (Maignan, Ferrell, & Ferrell, 2005). Additionally,
(2010) support the idea that firm capability is path-dependent in resource support, such as key market information involving competi-
nature. This means that the turbulent environment disturbs the building tion, will also be valuable for the firm in developing MKCAPs in a
of the firm’s MKCAP development route. Furthermore, changing en- competitive environment. Second, the professional experience of board
vironments create a special challenge for acquiring reliable market in- members will be particularly relevant for the firm in coping with
telligence, which serves as the foundational basis for a firm to build competition. A diverse board further enhances this advantage by pro-
MKCAP and to best cater to customer markets (Jarratt & Fayed, 2001). viding a wider scope of alternatives available to the functional de-
Information ambiguity, with the compounded difficulty of resource partments such as marketing (Walt & Ingley, 2003). For example, ethnic
configuration, will likely profoundly undermine MKCAP levels. Given diversity greatly assists a firm to have deeper insights about certain key
this pattern, BODIV may display differential roles in high versus low customer groups, leading to better marketing skills (Carter et al., 2003).
turbulence industries as they influence the firm’s MKCAP. The resource Third, the positive image of diversity of the governance team itself
advantages of BODIV are more desired by firms in high turbulence in- supports marketing by offering signaling benefits. The enhanced image
dustries because these firms have the disadvantages of acquiring, re- not only supplements marketing strategies but also directly impacts the
taining, and properly deploying resources to satisfy customers customer market and other stakeholders (Cretu & Brodie, 2007). Thus,
(Carpenter & Westphal, 2001). The diverse body of a board thus pro- these benefits jointly provide the firm’s marketing teams a supportive
vides a two-fold support for these firms. First, the heterogeneous environment for launching campaigns. Thus we postulate that:
background of the members makes the firms’ governance team more H4: BODIV’s positive effect on firm MKCAP will be stronger in a
aware of environmental changes because of the increased connections high competition intensity environment than in a low competition
to different aspects of the environment (Upadhyay & Zeng, 2014). In intensity environment.
this way, the firm more reliably predicts the market and hence facil-
itates the building of its MKCAP. Second, the relational stock held by 3. Data and measures
the diverse board members will likely create an extended network with
other stakeholders or partners and thus enable the firm to be less af- The data are collected from a set of carefully selected sources such
fected by the environmental changes (Caiazza & Simoni, 2015). as Compustat, the RiskMetrics Directors database, the Business Segment
Therefore, this advantage of externality provides the firm’s marketing database, and supplemented by the firms’ annual reports information.
teams with a more stable platform to build best marketing tactics. Thus The sample frame contains North America public listed firms (whenever
we hypothesize that: available across these databases) in a comprehensive spectrum of in-
H3: BODIV’s positive effect on firm MKCAP will be stronger in a dustry sectors such as oil and gas, construction, food products, in-
high turbulence environment than in a low turbulence environ- dustrial and commercial machinery, electronics, communication, elec-
ment. tric services, retail, wholesale, and business services (ranging from year
2000 to 2015). These data sources meet the criteria for the current
2.6. Competition intensity, BODIV, and MKCAP study for six key reasons. First, these databases have been popularly
used in business studies and the reliability and quality have been well
Competition intensity is defined as the number and relative documented (e.g., Fang, Palmatier, & Steenkamp, 2008; Jo & Harjoto,
strengths of the firms playing in the same industry (Anderson et al., 2011; Masulis & Mobbs, 2014). Second, these databases cover firm from
2004). High competition intensity means there are many similar firms different industry sectors, which is necessary for ensuring the external
competing in the market (Kurt & Hulland, 2013). In these industries, validity of our study. Third, the key measures resulting from these
firms seek effective ways to neutralize the competitors marketing ef- secondary databases are immune from problems such as perception
fectiveness. Martinez-Miera and Repullo (2010) find that in competitive bias, which is often detected in perception-based methods such as in-
markets, the firms’ power of controlling markets is reduced due to the terviews and surveys. This is particularly important for examining
counter offers from rivals. For example, customers’ churn increases factors such as firm capability because informants’ assessed scores of
because of the influence of aggressive marketing campaigns or new capability may be seriously biased due to their specific roles in the firms
solutions from the competitors (D’Alessandro, Johnson, Gray, & Carter, and their incomplete and skewed knowledge scope about the industries
2015). A severe consequence is that a firm facing these challenges often and competition. Fourth, choosing multiple databases also reduces the
has to deviate from its strategic routes to create new ones (Porter, threat of common method bias. Fifth, this data approach also allows
2008). This type of deviation is likely to result in a double-fold problem researchers to have access to a large number of sample firms to increase
involving less customer satisfaction and more resource waste. For ex- the advantages of representativeness. Sixth, the data items collected
ample, shifting away from an established marketing route will annoy span a time period covering multiple years and enable researchers to

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W. Sun, et al. Industrial Marketing Management 90 (2020) 14–29

Table 2
Variable Descriptive Information and Correlations.
Mean SD V1 V2 V3 V4 V5 V6 V7 V8 V9 V10 V11 V12

Marketing Capability V1 0.59 0.22

Board Diversity V2 0.71 0.09 0.07
***
Env. Munificence V3 1.06 0.03 −0.06 −0.01
***
Env. Turbulence V4 0.52 0.07 −0.07 0.08 0.44
*** *** ***
Competition Intensity V5 0.79 0.18 −0.13 −0.47 −0.10 −0.22
*** *** *** ***
Board Size V6 9.90 1.98 0.06 0.23 −0.01 0.02 −0.18
*** ***
Market Breadth V7 1.08 0.48 0.14 0.18 −0.01 −0.01 −0.20 0.16
*** *** ***
Firm Age V8 3.27 0.62 0.09 0.22 0.00 0.05 −0.18 0.35 0.30
*** *** ** *** *** ***
SG&A V9 0.22 0.18 0.03 −0.08 −0.02 −0.02 0.00 −0.01 −0.11 −0.04
*** *** **
Resource Level V10 0.21 0.32 0.14 0.03 −0.06 0.02 −0.05 0.08 0.07 0.18 0.09
*** * *** ** *** *** *** ***
Asset Growth V11 0.10 0.32 0.05 −0.07 0.08 0.01 0.01 −0.10 −0.05 −0.12 0.01 0.01
** *** *** *** ** ***
Firm Leverage V12 0.23 0.17 0.03 0.04 −0.01 0.07 0.08 −0.05 0.02 −0.05 −0.16 −0.28 0.02
** *** *** ** ** *** ***
Performance Uncertainty V13 0.23 0.09 0.02 0.12 0.00 0.10 −0.11 0.05 −0.05 −0.04 0.16 0.21 0.04 −0.24
*** *** *** ** ** * *** *** *

*p < .10, **p < .05, ***p < .01.

use more rigorous panel data estimation tools to increase the precision 3.2. Marketing capability (MKCAP)
of estimators. The final merged dataset contains 3978 non-missing
observations from 575 firms. The descriptive information is presented Firm capability is conceptualized as the degree to which a firm can
in Table 2. The variable measure methods are discussed below. deploy its controllable resources to achieve performance. MKCAP
therefore reflects how well a firm can translate its marketing resources
into market performance (Lieberman & Dhawan, 2005; Morgan, Clark,
3.1. Board diversity (BODIV) & Gooner, 2002; Vorhies & Morgan, 2005). This notion can be seam-
lessly operationalized by the econometric tool stochastic frontier model
To sufficiently reflect the diversity of the board, previous studies (SFM), which adopts an input–output approach to gauge the efficiency
(e.g., Erhardt et al., 2003) support that both the observable dimensions, level of each subject. This method of measuring capability can be found
such as demographic characteristics, and unobservable dimensions, in all major business research fields, such as management, marketing,
such as skill- and experience-based variables, should be included. This operations, and innovation (e.g., Lieberman & Dhawan, 2005; Nath
view is particularly relevant to our current study because the marketing et al., 2010). We carefully select a set of marketing inputs to run the
sector has long been viewed as a construct connecting to all the aspects SFM. All these inputs have solid support from previous studies to be the
of the firm and thus the inclusive measure of diversity better reflects preferred measures of marketing resources in specific areas. The main
this trait. In addition, the inclusive measure enhances the notion of input items are collected from Compustat. We include selling, general,
diversity by focusing on a double-fold heterogeneity, which is the di- and administrative expenses (SG&A) to capture the marketing ex-
versity within each dimension such as younger and older in the age penditure involving sales, advertising, promotion, and other supporting
dimension, and the diversity across different dimensions such as age activities (Dutta et al., 1999). We use receivables (RECEV) to proxy the
and ethnicity. In this sense, the inclusive view of BODIV more precisely customer relationship resource because it signifies the willingness of
echoes the diversity theory. The RiskMetrics Directors database pro- the firm to extend credit to its customers (Nath et al., 2010). We include
vides an extended set of board members’ information, including age, intangible assets (INTASSET) because it is highly relevant for driving
gender, ethnicity, tenure in the board, management position, other customer acceptance (Cretu & Brodie, 2007). We include the installed
directorship positions, and expertise types, so it becomes a preferred base (INSTB) as measured by previous sales volume because the current
source for measuring BODIV. We follow Harjoto et al. (2015) and use install base will influence customers’ continuity (Dutta et al., 1999). We
Blau’s index to measure each dimension’s heterogeneity expressed as 1 also include firm slack resources (SLARES), which are measured as the
– ΣPi2, where p is the individual category’s portion in a specific di- principal component of working capital and retained earnings (Fang
mension and i is the number of the categories. However, for variables et al., 2008). We use market share and gross profit margin to measure
with different numbers of variations, Blau’s index have different ranges. marketing outcomes that should be reflected by both volume and
Therefore, we normalize each individual factor against the range within profitability. The SFM is expressed as a Cobb–Douglas production
each dimension (Harjoto et al., 2015; Wang & Hsu, 2013; Zhang, 2012). function on panel data as follows:
Because the board composition may have systematic variations due to
the fact that the firms are in different industries, we further normalize Ln (MARKET SHAREit )
the Blau’s index of each firm against the industry means. This way
= α 0 + α1 × Ln (SG &Ait ) + α2 × Ln (RECEVit ) + α3 × Ln (INTASSETit )
makes the data measures more comparable across industries and also it
further removes the concern of multi-collinearity when BODIV is + α4 × Ln (INSTBit ) + α5 × Ln (SLARESit ) + εit (α ) − ηit (α )
modelled with the set of environmental variables. We then compute the
average score to obtain a composite score to represent the BODIV
(Harjoto et al., 2015; Wang & Hsu, 2013).

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W. Sun, et al. Industrial Marketing Management 90 (2020) 14–29

Ln (PROFIT MARGINit ) heterogeneities on the firm’s MKCAP.

= β0 + β1 × Ln (SG &Ait ) + β2 × Ln (RECEVit ) + β3 × Ln (INTASSETit )
4. Analysis methods
+ β4 × Ln (INSTBit ) + β5 × Ln (SLARESit ) + εit (β ) − ηit (β )
Because changes in MKCAP resulted from firm structural variation
where i denotes firms and t represents time; εit(α) and εit(β) are random
may display a lag effect, we use MKCAP(t+1) as the dependent variable
shocks; ηit(α) and ηit(β) are the inefficacy scores that capture the distance
to capture this effect. Doing so also reduces the concern of reversed
between each firm’s ability and the best performer’s ability to convert
causality. The full model is specified as follows:
its resources into outcomes. The mean of the reversed final scores, (1-
ηit(α)) and (1- ηit(β)), from these models becomes the measure of Marketing Capabilityit + 1 = β0 + β1 × BODIVit
MKCAP. + β2 × Environmental Munificencejt
+ β3 × Environmental Turbulencejt
3.3. Environmental factors + β4 × Competition Intensityjt
+ β5 × BODIVit × Environmental Munificencejt
Environmental munificence stands for the growth rate of an industry.
Keats and Hitt (1988) formulate a time-series regression with industry + β6 × BODIVit × Environmental Turbulencejt
sales volume as the dependent variable (yt) and year as the independent + β7 × BODIVit × Competition Intensityjt
variable (t), over each five-year window. + β8 × Board Sizeit
yt = b0 + b1 t + εt + β9 × Market Breadthit
+ β10 × Firm Ageit
The coefficient of the time (b1) thus reflects the overall growth trend
+ β11 × SG &Ait
of this industry. We follow this method to obtain the munificence
+ β12 × Resource Levelit
measure (Withers & Fitza, 2017). Environmental turbulence measures the
volatility of the industry revenue volume over a time period. In the + β13 × Asset Growthit
literature, there are multiple approaches for capturing this effect. Nu- + β14 × Firm Leverageit
merous scholars, such as Fang et al. (2008), propose using the coeffi- + β15 × Performance Uncertaintyit
cient of variation (COV) to measure turbulence. In our main model, we + Time Dummy Variables
adopt the same approach. This method is expressed as COV = ( σ ) + Industry Dummy Variables + εit
μ
where σ is the standard deviation of the industry sales in a time period
where i means firms, j denotes industries, and t means time periods
and μ is the mean of sales in the same time frame. We also use the
(years). This model specification has a number of merits for the purpose
Sridhar, Narayanan, and Srinivasan’s (2014) measure method in the
of the current study. First, the use of different firm types across a
robustness check. Both of the two measures yield consistent results. To
comprehensive list of industries allows the model to account for the
measure competition intensity, there is a consensus in the literature of
sufficient heterogeneity and therefore captures the essential relation-
using the Herfindahl-Hirschman Index (HHI). The HHI measures the
N ships and achieves higher external validity. Second, the panel data
concentration rate of an industry (HHI = ∑ Si2 , where S is the market structure enables a more holistic examination of the relationships over
i=1
share of individual firms in a certain industry), and 1-HHI thus captures a number of time periods and it provides estimators that minimize the
the degree of competition (Anderson et al., 2004). bias due to a single time span’s specific situation. Third, the hetero-
geneities of the firm’s attributes and their joint influences on firm
capability are sufficiently controlled by the firm’s characteristic vari-
3.4. Control variables
ables, such as firm age, assets/resource metric, growth potentials and
performance volatility. Fourth, the whole set of the main effects of the
In additional to the main effects, MKCAP may also be influenced by
environmental factors serves as an adequate solution for accounting for
other factors. We carefully selected a set of control variables based on
the external conditions. Fifth, the year and industry dummy variables
the supporting literature. We control for market diversification because
control for the time and firm group effects, and BODIV is thus estimated
market scope may affect a firm’s knowledge breadth and thus influence
under a multi-layer multi-dimensional control model specification. For
the firm’s MKCAP. Using the Business Segment Database, we collect the
this model specification, two additional concerns remain. First, firms
number of markets of operations for each firm and adjust it by the in-
may display systematic similarity due to being in similar industries or to
dustry sectors’ range (Bowen & Wiersema, 2005). We control for a
having close endowment configurations or development paths. These
firm’s age because knowledge accumulation associated with a firm’s age
characteristics increase the possibility that the variance of a dependent
is relevant for building stronger capability. We collect the number of
variable is unproportionally explained by certain clusters of firms.
years that a firm is publicly listed and a log-transformation is applied
Thus, heteroscedasticity becomes a threat. Second, although panel
(Anderson & Reeb, 2003). We control for the firm’s marketing emphasis
structure data do have benefits, they may induce problems of auto-
level and its resource level by including the SG&A/Sales and slack re-
correlation over the time span. Given these considerations, we carefully
source volume variables. These two variables control for the effect that
select three robust regression methods to handle the panel data. We first
may occur when the firm’s marketing function is supported with a
use the Newey-West robust regression, which generates Newey-West
higher resource commitment. Because the board characteristics not
standard errors following
only include diversity but also include size, we control for this effect
and add the number of members on the board as board size. Further, we m n
̂ = X ′Ω0̂ X + n l ⎞
control for both the growth trend measured by asset growth and the X ′ΩX ∑ ⎛1 − ∑ et ̂ et −̂ l (x ′t x t − l + x ′t − 1 x t )
n−k l=1 ⎝ m + 1⎠ t=l+1
performance fluctuation measured by cash flow volatility to account for
the firm’s performance metrics’ impact on the firm’s marketing-side where xt stands for the row of X matrix that is observed at time t; m is
strengths. Because firms’ debt may influence a firm’s orientation of the first-order autocorrelation; n is the number of observations and k is
resource allocation, we control for this effect by using firm leverage, as the number of predictors. The standard errors generated by this method
measured by the ratio between long-term debt and asset size (Mishra, are heteroscedasticity-autocorrelation consistent (Newey & West, 1987;
Ewing, & Pitt, 2019). In addition, we also add a time dummy variable Rego et al., 2009). To ensure the robustness of the method choice, we
set and an industry set to account for the time and industry related further run the same model by using the White-Cluster robust

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W. Sun, et al. Industrial Marketing Management 90 (2020) 14–29

Table 3
Empirical Analysis Results.
Control Variables Main Effects Full Model (Newey-West Full Model (White-Cluster Full Model (Feasible GLS
Robust Estimation) Robust Estimation) Estimation)

Coeff.(t) Sig. Coeff.(t) Sig. Coeff.(t) Sig. Coeff.(t) Sig. Coeff.(z) Sig.

Board Diversity 0.060 ** 0.119 *** 0.119 ** 0.119 ***

(1.98) (3.48) (2.38) (4.25)
Env. Munificence 0.000 0.018 0.018 0.018
(0.01) (0.76) (0.74) (0.89)
Env. Turbulence −0.080 *** −0.139 *** −0.139 *** −0.139 ***
(−2.62) (−3.87) (−3.00) (−5.42)
Competition Intensity −0.163 *** −0.205 *** −0.205 *** −0.205 ***
(−5.32) (−6.29) (−4.41) (−8.48)
Board Diversity × Env. Munificence −0.044 ** −0.044 ** −0.044 **
(−2.32) (−2.33) (−2.31)
Board Diversity × Env. Turbulence 0.089 *** 0.089 *** 0.089 ***
(3.45) (3.14) (3.77)
Board Diversity × Competition Intensity 0.079 *** 0.079 ** 0.079 ***
(2.77) (2.17) (3.52)
Board Size 0.083 *** 0.069 *** 0.070 *** 0.070 ** 0.070 ***
(3.70) (3.10) (3.18) (2.25) (3.74)
Market Breadth 0.008 −0.008 −0.015 −0.015 −0.015
(0.35) (−0.34) (−0.65) (−0.42) (−0.78)
Firm Age 0.043 * 0.025 0.024 0.024 0.024
(1.66) (1.00) (0.97) (0.63) (1.23)
SG&A −0.039 −0.026 −0.021 −0.021 −0.021
(−1.33) (−0.99) (−0.81) (−0.58) (−1.04)
Resource Level 0.114 *** 0.118 *** 0.124 *** 0.124 *** 0.124 ***
(4.05) (4.49) (4.81) (3.38) (6.38)
Asset Growth 0.046 ** 0.046 ** 0.046 ** 0.046 ** 0.046 ***
(2.29) (2.23) (2.21) (2.09) (2.79)
Firm Leverage 0.026 0.015 0.011 0.011 0.011
(0.88) (0.53) (0.37) (0.25) (0.51)
Performance Uncertainty 0.112 *** 0.109 *** 0.119 *** 0.119 *** 0.119 ***
(4.31) (4.22) (4.57) (3.01) (5.86)
Time & Industry Dummies Included Included Included Included Included
Adj. R2 0.185 0.344 0.361 0.361 0.361

*p < .10, **p < .05, ***p < .01; Variance Inflation Factors are all lower than 10; Incremental contribution of variables across models are significant.

regression, which generates White standard errors to address hetero- requires necessary resource support, such as salespersons’ training,
scedasticity by using cross-market conferences, technology support, and higher pay for
qualified managers. Asset growth is positively related to MKCAP. The
Var (β )̂ = (X ′X )−1X ′ΩX (X ′X )−1 momentum of firm asset expansion may give firms good conditions for
and utilize intra-firm clustering to account for autocorrelation (Cuneo, experimenting different entrepreneurial approaches and thus improve
Milberg, Benavente, & Palacios-Fenech, 2015; Mizik & Jacobson, 2009). the marketing effectiveness (Eshima & Anderson, 2017). It is also in-
Beyond that, we also use the Feasible Generalized Least Squares (FGLS) teresting to find that performance uncertainty is positively related to
method and all the three methods yield consistent results. MKCAP. This finding is aligned with firm risk management literature
that has strong evidence illustrating firms that have uncertainties in its
financial performance will be more motivated to establish coping
5. Results and discussion
methods such as restructuring its marketing assets to aim at smoothing
future revenue flows (Irvine & Pontiff, 2008).
The empirical analysis results are presented in Table 3. We first run
The H1 postulates that BODIV positively drives firm MKCAP. This
the model with only control variables, then add main effects, and finally
hypothesis is significantly supported by the analysis results (β = 0.119,
run the full model. There is no significant inconsistency found in the
p < 0.01). This finding reveals two crucial traits of corporate gov-
control/main effects across the models. We also conduct partial-F tests
ernance. First, board characteristics indeed have an impact on esca-
to check the incremental contributions of the main effects and inter-
lating functional capability. This notion is theoretically supported in the
actions and we find both of them are significant (F = 13.40, p < 0.01;
literature, and our work is the first one that empirically confirms such
F = 6.63, p < 0.01). Further, the Durbin–Wu–Hausman test shows
an existence. Second, previous studies also document the negative as-
that endogeneity is not a concern in this model. We also calculate the
pects of having a diverse board composition that may undermine firm
variance inflation factors (VIF) and no VIF is greater than 10, thus
decision making. Our research shows that for firm capability such as
multi-collinearity doesn’t pose a threat to the model. In the control
MKCAP, a diverse board strongly benefits the firm. The fundamental
variables, board size is found to have a positive effect on MKCAP. This
reason is that BODIV achieves resource advantages, improves resource
echoes the resource-dependence function of the board from a volume
configuration, and optimizes the firm’s environment by creating ima-
angle in that the increased board team may bring in a higher level of
gery assets that seamlessly meet the needs for building a strong MKCAP.
key resources including market information and marketing assets that
The results show that the main effect of environmental munificence
collectively contribute to the refinement of MKCAP. Tuschke, Sanders,
is not significant. This insignificance reveals several interesting roles
& Hernandez (2014) document that board team aggregately support the
that industry growth will play on firm capability. Supportive industry
firm’s market intelligence collection, which in turn improves the skills
conditions may offer firms favorable factors, such as an increase in the
of managing the markets. In a similar vein, the resource level is found to
number of market segments and an elevation of demands for the firm to
positively affect MKCAP because building firm marketing competency

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W. Sun, et al. Industrial Marketing Management 90 (2020) 14–29

Fig. 1. The Moderating Effect of Environmental Munificence on BODIV and MKCAP.

improve marketing skills. For example, a firm in a growing industry supports the empirical finding in our research. Lavie (2006) denotes
may continuously leverage their knowledge into new customer groups that firm capability is path-dependent and rigid to certain degree. Thus,
and meanwhile keep updating its knowledge sets to satisfy customers. the changing environment creates challenges for the firm to build
However, this type of condition also creates challenges for knowledge consistent skills to deploy resources and lower the marketing compe-
transfer. For example, firms may have strong inertia for updating their tency. For example, a sudden change of the customer trend will make
marketing skills and orientation due to their previous effectiveness and the firm’s current marketing strategies less relevant and the firm will
thus munificence fails to generate the motivation for MKCAP changes. have to start from scratch to create new capability sets to meet the
This joint effect explains the insignificance of the main effect of en- environmental change. Our analysis results show that the presence of
vironmental munificence. However, the interaction between BODIV BODIV may reshape the negative impact of turbulence. The effect
and munificence is significant (β = −0.044, p < 0.05), supporting pattern is illustrated in Fig. 4. When BODIV is low, environmental
H2. The interaction is illustrated in Fig. 1. BODIV shows greater turbulence exerts a strong negative impact on MKCAP. However, when
strength in increasing MKCAP in a low munificence industry than in a BODIV is high, turbulence’s negative effect becomes minimal. When
high munificence industry. This reinforces the logic behind the insig- BOIDV is even higher, turbulence will actually increase MKCAP. This
nificant main effect of munificence. Firms show more willingness to further demonstrates the necessity of having a sufficiently diverse board
change when they observe low growth rates and a less friendly industry. composition because the resources and experience they bring into the
In these conditions, they are more willing to resort to the benefits of- firm will significantly benefit the firm in coping with turbulent markets.
fered by the diverse board team. H4 posits that BODIV will perform differently for different compe-
In support of H3, the interaction between BODIV and turbulence is tition intensity levels. This hypothesis is supported (β = 0.079,
found to be significant (β = 0.089, p < 0.01). The effect is illustrated p < 0.01). In a highly competitive market, BODIV is found to strongly
in Fig. 2. It is interesting to observe that in a low turbulence environ- increase MKCAP (Fig. 3). This is in line with the theoretical framework
ment, BODIV does not play a significant role in influencing MKCAP, but in which BODIV is in fact one source of competitive advantages. Our
it becomes strongly effective in a high turbulence environment. This results indicate that this advantage of BODIV is achieved via the en-
finding seamlessly reflects the theoretical reasoning that BODIV has hanced MKCAP. In highly competitive situations, board members with
advantages related to resource availability, information sources, and diverse backgrounds attract important assets, such as network stocks,
professional opinions, as well as to relational stocks. These advantages that enable the firm to perform well in challenging circumstances.
are highly desired in turbulent markets because the firm in that situa- The negative main effect of competition intensity also deserves
tion will need these inputs to cope with uncertainties. This view is also discussion. The similar relationship can be found in recent studies (e.g.,
in line with that of Calantone, Garcia, and Dröge (2003) who suggest Feng et al., 2015). In general, competitors will disturb the firm’s mar-
that in turbulent markets, seeking a diverse base of strategic inputs is keting resources and will also likely redirect customer trends and in-
recommended. In very stable market conditions, the firm’s marketing validate the firm’s current MKCAP. This explains the negative impact.
function may be self-sufficient in acquiring those assets and thus is less However, adding BODIV changes the pattern (Fig. 5). When BODIV is
reliant on the leadership team for the supports. The research of Jüttner, low, increasing competition will strongly reduce MKCAP. However,
Christopher, and Baker (2007) also points to this direction. when BODIV is high, competition’s effect becomes marginal; when
The main effect of environment turbulence is significantly negative BODIV is extremely higher, competition no longer exerts undesirable
(β= − 0.139, p < 0.01). This finding is important because traditional effects on MKCAP. This pattern, similar to turbulence’s effect, illustrates
thinking tends to conclude that a challenging environment would im- that BODIV is a mechanism that protects the firm from unfavorable
prove a firm’s marketing skills, but the empirical study shows the op- environmental conditions and guards its marketing competency. For
posite. Theoretical evidence can be found in the literature. For example, example, although turbulence and competition may drastically chal-
Zhou and Li (2010) note that capability needs to be developed to cope lenge the firm’s current capability, with the support of a diverse board,
with a turbulent environment. In other words, the turbulent environ- these conditions may be valuable knowledge pools for the firm to use to
ment will soon make the capability outdated. This is a sound logic that streamline marketing assets.

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Fig. 2. The Moderating Effect of Environmental Turbulence on BODIV and MKCAP.

5.1. Robustness checks. To ensure the robustness of our empirical the Research Quotient. The results are presented in Table 4. BODIV is
results, we also conduct a series of additional studies. As mentioned in found to significantly increase the capability of the technology sector of
the methods section, we adopt both the Newey-West and White-Cluster the firm, and this result reinforces the main theoretical reasoning of the
robust regressions to run the data, and the results are consistent. We paper and thus ensures the robustness of our findings by cross-vali-
also try the Feasible GLS analysis on panel data, and the results are dating the link of board composition and capabilities.
consistent again (Table 3). Further, when measuring MKCAP, we use a
normal-half normal assumption in the SFM formulation. We also use
6. Implications for theory
normal-exponential and normal-truncated assumptions to obtain the
MKCAP scores, and the hypothesized relationships all hold. In the main
The findings of this study firstly yield special implications for B2B
model, we use the coefficient of variation as the measure of firm tur-
firms. Traditional view of marketing capability-building in business
bulence, and we also use Sridhar et al.’s (2014) approach to obtain the
markets are mainly limited to partners’ business transactions such as
alternative turbulence measure, and we find no changes in the re-
supply chain coordination, service options, and business relationships
lationships. To ensure the theoretical soundness of the assertion that
through functional departments’ reciprocal activities. However, re-
BODIV positively affects firm capability, we also formulate a model that
searchers are increasingly realizing that B2B firms are more likely to
examines BODIV’s impact on innovation capability as reflected by the R
engage in organizational interactions in addition to business transac-
&D efficiency (Knott, 2008). We collect innovation capability data from
tions, and thus the organizational changes may be a significant force to

Fig. 3. The Moderating Effect of Competition Intensity on BODIV and MKCAP.

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W. Sun, et al. Industrial Marketing Management 90 (2020) 14–29

Fig. 4. The Moderating Effect of BODIV on Environmental Turbulence and MKCAP * The BODIV High – High is a further median split within the high BODIV firms.

shape the firm’s marketing-side strategies as well as the capabilities of draws a clear blueprint showing how top governance teams shape firm
realizing these strategies. Our studies, from the unique angle of specific strategic units and thus allows researchers in this area to more
boardroom diversity, confirms and further advances this rationale by clearly understand the influence paths of the board. Second, linking the
supporting the importance of incorporating firm governance traits into board and marketing is of particular interest because this link vertically
understanding the firms’ market-side competency. crosses the hierarchies of the firm management structure regarding
This study further generates implications for board diversity the- building firm competency and illustrates the fundamental goals of firm
ories. The extant knowledge about BODIV is limited to its association management.
with an array of financial and social outcomes. This view largely ne- The inclusion of environmental factors further enhances the model
glects the inherent mechanism regarding the way BODIV finally realizes toward a deeper understanding of a theoretical model with leadership
the firm’s outcomes. If the board fails to change the functional effec- characteristics, inherent effectiveness, and external conditions. This
tiveness of a firm, the financial performance is not feasible. The in- view more realistically accounts for the actual situation of each firm
corporation of MKCAP as a direct outcome of BODIV bridges the the- that simultaneously has internal coordination and external influences
oretical gaps and legitimates the role of the board by explicitly directing and thus better illustrates the interactions between these key factors.
its power into a new area. This extension of the role of BODIV thus can When building a theoretical model involving board characteristics, re-
lead to at least two important contributions to corporate governance searchers should pay extra attention to this trait. In addition, marketing
theories. First, the new focus on MKCAP as the outcome of BODIV is a functional area that also has a strong connection to both the

Fig. 5. The Moderating Effect of BODIV on Competition Intensity and MKCAP * The BODIV High – High is a further median split within the high BODIV firms.

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W. Sun, et al. Industrial Marketing Management 90 (2020) 14–29

Table 4 goal and assists researchers in this field to investigate building strong
Robustness Analysis Results Using Innovation Capability as the Dependent capabilities.
Variable. More importantly, our measure of MCAP incorporates both the firm
Model (Newey- Model (White- Model (Feasible GLS inputs and firm performance indicators including market share and
West Robust Cluster Robust Estimation) profitability (the input–output approach). Therefore, our finding of the
Estimation) Estimation) positive relationship between BODIV and MCAP signifies the far-
reaching force of board characteristics in achieving firm market per-
Coeff.(t) Sig. Coeff.(t) Sig. Coeff.(z) Sig.
formance via the enhanced firm functional strengths because MCAP in
Board Diversity 0.115 * 0.115 * 0.115 ** this measure gauges how well a firm may utilize its assets to realize
(1.82) (1.72) (2.13) performance. From another angle, the finding of BODIV’s effect on
Env. Munificence 0.032 0.032 0.032
MCAP, combined with the well-documented evidence of MCAP’s ben-
(1.24) (1.15) (1.12)
Env. Turbulence −0.053 ** −0.053 * −0.053 * eficial effects on firm financial performance such as firm value, stock
(−2.20) (−1.75) (−1.88) return, and financial risks (e.g., Angulo-Ruiz et al., 2014; Mishra &
Competition −0.062 * −0.062 −0.062 ** Modi, 2016), contributes to decoding the working mechanism under-
Intensity lying the traditional view of the BODIV-firm performance link by em-
(−1.87) (−1.18) (−2.45)
phasizing the pivotal role of MCAP in this framework. In this regard,
Board Size 0.069 ** 0.069 0.069 ***
(2.32) (1.58) (2.76) our research provides essential supports to the complete understanding
Market Breadth −0.044 −0.044 −0.044 * of the board’s influences on firm outcomes.
(−1.55) (−1.05) (−1.68) Our study also sheds lights on the upper echelon theory, which has a
R&D Levels −0.110 −0.110 −0.110 **
long history of calling for more studies on the link between firm top
(−1.52) (−1.19) (−2.27)
Firm Age −0.050 * −0.050 −0.050 *
leadership team and firm strategic units. Traditional focus of upper
(−1.77) (−1.21) (−1.89) echelon theory is largely limited to the management related fields such
SG&A −0.225 *** −0.225 ** −0.225 *** as human resources, operations, and products/production and no ex-
(−3.14) (−2.42) (−4.34) isting evidence demonstrates how firm governance team’s traits may
Resource Level 0.151 *** 0.151 *** 0.151 ***
affect marketing capability. In this sense, our research extends the
(4.35) (3.44) (6.76)
Asset Growth −0.018 −0.018 −0.018 horizon of the influence of upper echelon characteristics into a critical
(−0.64) (−0.59) (−0.81) strategic area. Marketing researchers, on the other side, may find this
Firm Leverage 0.037 0.037 0.037 study useful because it urges them to more actively explore the firm’s
(0.93) (0.70) (1.50)
inner factors that have potentials to affect marketing capability-
Performance −0.011 −0.011 −0.011
Uncertainty
building beyond the traditional thinking that marketing capability is
(−0.39) (−0.29) (−0.47) primarily from outside interactions with customers.
Time and Industry Included Included Included
Dummies 7. Implications for practice
Adj. R2 0.308 0.308 0.308

*p < .10, **p < .05, ***p < .01; Variance Inflation Factors are all lower For firm managers, our research also provides a set of useful prac-
than 10. tical guidelines. For example, marketing managers are often confused
about how to build strong capability tailored to better customer sa-
internal and external environments of the firm. This commonality of the tisfaction because a large number of factors may be involved. In addi-
traits between the board and marketing makes the consideration of tion, the environmental factors play strong roles in affecting a firm’s
environmental factors a necessity and a meaningful advancement. A marketing functions. In this case, placing more weight on the board’s
more interesting fact is that the frontier roles of the board and mar- guidelines may be more meaningful. As an example, the board, espe-
keting occur at different level of the firm, making the link between cially a board with diverse backgrounds, may bring in valuable insights
these two constructs particularly meaningful under the influence of the about the markets and enables marketing managers to more accurately
external environment. capture the trends of the industry. In addition, the board represents the
For the firm capability theories, our study provides three theoretical shareholders and a diverse board may have less bias in their re-
implications. First, the extant understanding about capability-building presentation and decision making, leading to their better guiding the
is primary limited at the strategic levels. Although theorists have em- functionality in the firm’s strategic units. Therefore, marketing man-
phasized the importance of top management teams’ support for cap- agers may develop marketing routines and skill sets more aligned with
ability-building, no empirical work has shown the concrete evidence of shareholder value and thus maximize the coherence with the firm’s core
this. Our study extends this notion and paves the roads for future re- value and avoid conflicts and resource misuse. In addition, the diversity
searchers to consider board characteristics as a driver for firm-specific of the board may be utilized by managers to motivate employees, such
capability types. The positive relationships between BODIV and as salespeople, by emphasizing the improved social image and em-
MKCAP/innovation capability in our empirical work clearly demon- ployee relationships, leading to better marketing competency.
strate this direction. Second, our research finds evidence that highly In B2B marketing domains, interactions with customers are largely
turbulent and highly competitive environments will likely undermine built upon organizational exchanges, which require firms to establish
firm MKCAP levels. However, with the presence of high BODIV, the operational connections at different levels of the management. In this
negative influences of environment can be neutralized. This finding setting, building marketing capability will go beyond merely under-
creates a new knowledge set about how the well-designed firm gov- standing customer needs through the marketing function. Rather, the
ernance teams may guard firm strengths, and thus this finding not only whole firm should function as a unified system towards the optimized
validates the hidden assumption embedded in the firm capability the- customer relationship via the implementation of corporate-supported
ories but also further extends the understanding into an environment- marketing campaigns. In this process, the boardroom’s diverse char-
based coping mechanism that includes board composition. Third, acteristics play interesting roles, as confirmed in our empirical results.
compared to the vast studies in firm capabilities that focus on the Industrial marketing teams, therefore, should fully leverage the ad-
outcome metrics of firm capabilities, academic endeavors invested on vantages of having a diverse board group that are superior in resource
finding the determinants are surprisingly scant. Our research serves this heterogeneity, relationship network, and guidance effectiveness. In this
sense, B2B firm owners should purposefully emphasize the formation of

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W. Sun, et al. Industrial Marketing Management 90 (2020) 14–29

the boardroom with diversity to facilitate the firm’s aim along the financial performance. This effort may reveal the joint contribution of
market-oriented development path. the board and marketing-side competency on firm outcomes, and thus
The varying external environments provides additional opportu- create a new research avenue along this direction.
nities and/or threats for managers in the capability-building process. As The RiskMetrics Directors database doesn’t have specific data items
our findings indicate, when the environment is low in munificence, involving every board member’s experience in functional sections of the
high in turbulence, or high in competition, having a diverse board will firm such as operation, marketing, and so on. This information, how-
be particularly important for improving firm marketing capability. ever, may be highly important and valuable for further checking how
These findings are important because in practice managers may not the functional expertise profile in the boardroom may exert influences
sufficiently consider such a comprehensive pack of factors. For one on the firm’s competitive advantages. To complement this data defi-
thing, board and functional units such as marketing have an obvious ciency, future researchers may implement new data collection ap-
vertical distance in the firm’s managerial hierarchy. For another, the proaches such as longitudinal panel survey and track the firms’
board/marketing are firms’ internal entities, but munificence, turbu- boardroom characteristics of functional expertise. This research direc-
lence, and competition are outside conditions and there exists a hor- tion is likely to depict more detailed influences of the boardroom.
izontal distance among these factors. Our research purposefully bridges
these vertical and horizontal separations and provides explicit evidence 9. Concluding remarks
in which board diversity will help firms’ build stronger marketing
capability, especially in unfriendly environmental conditions. Firms in The missing link between firm governance characteristics and firm
those conditions should pay extra attention to utilize the benefits of a marketing sector’s strengths calls for imperative research attention
diverse board group. because bridging this gap allows academic researchers to constitute a
For firms with low board diversity, our research provides useful complete picture showing the fundamental mechanism with which
evidence for possible strategy renovation. As shown in the empirical firms achieve better functional capabilities. Our research realizes such a
work, the low diversity firms are particularly sensitive to the adverse goal and demonstrates how board diversity, one of the most important
environment influences such as high market turbulence and competi- firm top leadership traits, significantly drives firm marketing capability.
tion. For these firms, capability-building seems to be a challenging task This relationship is further modelled with three key environmental
and they are less likely to efficiently cope with these negative en- conditions, munificence, turbulence, and competition. The interactions
vironmental conditions. Thus low diversity firms are highly suggested greatly enrich the theocratical contributions and the practical mean-
to absorb the findings in our research and reconsider their governance ingfulness of the research framework. The results that show the role of
characteristics to ensure the diversity, which will turn out to be one board diversity become stronger in challenging environments render a
significant factor of helping the firms deal with the environmental ne- further strong support for the essential function of the board and the
gativities and creating better marketing-side competitive competencies. benefits of its diversity. Management/marketing theorists as well as
firm managers can gain valuable insights and implications from these
8. Limitations and future research directions findings regarding firm leadership configuration and capability im-
provement in an environment-embedded framework.
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