Internal alliance and firm risk

Liang Sun

Global Finance Journal, 2023, vol. 57, issue C

Abstract: This paper studies the impact of internal alliances, measured by the fraction of top non-CEO executives and directors appointed during the current CEO's tenure, on firm risk. We find that firms with more executives or directors hired after the current CEO takes office are associated with higher-risk levels. This positive association is more prominent for rural and financially unconstrained firms, as well as periods outside the financial crisis. While internal coalition does not significantly affect low-risk investment, i.e., capital expenditures, it increases high-risk investment, i.e., research and development investment. Moreover, we find that firms with strong internal alliances are associated with lower firm value. Our results survive various robustness checks. Overall, this paper suggests that internal coalition is an important determinant of firm risk. Considering this aspect of board and management structures will lead to a better understanding of firm risk.

Keywords: Corporate governance; Corporate investments; Firm risk; Internal alliance (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:57:y:2023:i:c:s1044028323000595

DOI: 10.1016/j.gfj.2023.100864

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