Substitutes or complements? Co-opted boards and antitakeover provisions

Eunsuh Lee, Chaehyun Kim and Junyoup Lee

Applied Economics Letters, 2021, vol. 28, issue 3, 186-190

Abstract: We examine the relationship between co-opted boards and the adoption of antitakeover provisions (ATPs). Prior studies suggest that co-opted directors appointed after the current CEO assumes office provide weak monitoring. Consistent with the substitution view, we find that firms with greater co-option on the board adopt fewer ATPs. This result suggests that co-opted boards enable CEOs to pursue less additional entrenchment, thereby reducing the adoption of ATPs. Importantly, we find that co-opted boards explain the degree of ATPs beyond the traditional measure of board monitoring effectiveness, and even independent directors are associated with fewer ATPs once they are captured by CEOs.

Date: 2021
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DOI: 10.1080/13504851.2020.1740153

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