The effect of co-opted directors on firm risk during a stressful time: Evidence from the financial crisis

Sirithida Chaivisuttangkun and Pornsit Jiraporn

Finance Research Letters, 2021, vol. 39, issue C

Abstract: Co-opted directors are those appointed after the incumbent CEO assumes office. Prior research shows that co-opted directors affect the quality of board monitoring. We explore how co-opted directors influence firm risk during a stressful time, focusing on the financial crisis of 2008. Firms with more co-opted directors experience significantly lower firm risk during the crisis. The results hold for total risk, idiosyncratic risk, and systematic risk. This corroborates the notion that, managers are inherently risk-averse, particularly so during the crisis. Co-opted directors allow managers to adopt corporate policies that reflect their own risk preferences, resulting in lower firm risk.

Keywords: Co-option; Co-opted directors; Financial crisis; Firm risk; Corporate governance (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612319311328
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:39:y:2021:i:c:s1544612319311328

DOI: 10.1016/j.frl.2020.101538

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().