Director co-option and future market share growth

Oneil Harris and Trung Nguyen

The North American Journal of Economics and Finance, 2022, vol. 62, issue C

Abstract: This paper examines the effect of director co-option on product market outcomes. We find that future market share growth declines as executives co-opt more of the board. Co-opted directors also inhibit the product market benefits from cash reserves. These findings hold in a variety of robustness tests, sustaining the view that director co-option reduces product market performance. Our results further show that co-option leads to lower market share gains among firms whose industry rivals intensely change products and have higher borrowing capacity. Compared to their competitors, firms with more co-opted directors also allocate less internal resources to potential product differentiation strategies, but award executives more cash-based pay. Overall, our findings support the agency theory supposition that firms with co-opted boards lose market share ex-post.

Keywords: Director co-option; Market share growth; Agency theory (search for similar items in EconPapers)
JEL-codes: G30 G34 L11 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:62:y:2022:i:c:s1062940822000614

DOI: 10.1016/j.najef.2022.101709

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