 Board co-option and default riskGhasan A. Baghdadi, Lily H.G. Nguyen and Edward J. Podolski Journal of Corporate Finance, 2020, vol. 64, issue C Abstract: We find that co-opted boards facilitate more erratic and arbitrary decision-making, contributing towards default risk. A one standard deviation increase in co-option increases default risk by 11% relative to normal levels. Supporting the notion that co-option makes decision-making more erratic, we find that stock return volatility and fundamental volatility are higher among co-opted boards and that strategic conformity among such firms is lower. We find no evidence that our results may be driven by firm risk-taking, however, we do find evidence suggesting that co-opted boards are less engaged and involved in strategic decision-making. We also find that external oversight mechanisms, in the form of institutional investors, financial analysts, media coverage, and takeover susceptibility, mitigate the documented effect. Overall, our study documents new evidence on the adverse effect of co-opted boards on firm default probability. Keywords: Expected default risk; Board of directors; Agency conflict; Governance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:64:y:2020:i:c:s0929119920301474 DOI: 10.1016/j.jcorpfin.2020.101703 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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