Do co-opted directors mitigate managerial myopia? Evidence from R&D investments

Pandej Chintrakarn, Pornsit Jiraporn, Sameh Sakr and Sang Mook Lee

Finance Research Letters, 2016, vol. 17, issue C, 285-289

Abstract: We explore the effect of co-opted directors on R&D investments. Co-opted directors are those appointed after the incumbent CEO assumes office. Because a co-opted board represents a weakened governance mechanism that diminishes the probability of executive removal, managers are less likely to be removed and are more motivated to make long-term investments. Our evidence shows that board co-option leads to significantly higher R&D investments. To draw a causal inference, we execute a quasi-natural experiment using an exogenous regulatory shock from the Sarbanes-Oxley Act (SOX). Our results reveal that the effect of board co-option on R&D is more likely causal.

Keywords: Co-opted directors; Co-opted board; Board co-option; R&D, Myopia; Corporate governance (search for similar items in EconPapers)
JEL-codes: G30 G34 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:17:y:2016:i:c:p:285-289

DOI: 10.1016/j.frl.2016.03.025

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