Do co-opted boards enhance or reduce R&amp;D productivity?

Harris, Oneil; Glegg, Charmaine; Buckley, Winston S.

doi:10.1016/j.najef.2019.101005

Cited by 18 publications

(15 citation statements)

References 16 publications

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“…To construct our sample, we obtain the data on co-opted directors from Coles et al (2014), who use data from the Institutional Shareholder Services database (formerly RiskMetrics) to calculate their measures of board co-option [1]. Many researchers have used co-option to capture the sense of obligation the director may feel toward the CEO for being selected (Harris et al , 2019; Jiraporn and Lee, 2018). As in earlier studies, we gauge co-option as a fraction of directors appointed after the CEO assumes office.…”

Section: Sample Construction and Variable Descriptionmentioning

confidence: 99%

“…Similarly, Wilson (2018) documents a negative association between co-option and the number of board meetings held, which suggests that co-opted directors reduce board oversight. Co-option also allows managers to retain more free cash flow within the firm (Jiraporn and Lee, 2018) and take more risk (Harris et al , 2019). In short, co-opted directors represent a weakened governance mechanism that exacerbates the agency conflict, resulting in adverse firm outcomes.…”

Section: Introductionmentioning

confidence: 99%

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Do analysts’ recommendations reflect co-opted boards?

Papangkorn

Chatjuthamard

Jiraporn

et al. 2020

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Purpose This study aims to examine whether co-opted directors influence analysts’ recommendations. As information intermediaries, financial analysts should incorporate the quality of corporate governance into their valuation because well-governed firms are associated with lower agency costs and better performance. Co-opted directors are those appointed after the incumbent chief executive officer assumes office. The authors investigate whether board co-option has an effect on analyst recommendations. Design/methodology/approach The present study uses univariate analysis, multi-variate regression analysis and conduct a natural experiment using the Sarbanes-Oxley as an exogenous shock. Findings The results show that firms with fewer co-opted directors tend to receive more favorable recommendations, suggesting that analysts favor firms with strong corporate governance. The results hold even after controlling for various firm characteristics, including the traditional measures of board quality, i.e. board size and independent directors. Originality/value The paper is the first of its kind and offers evidence on the effect of co-opted directors on analyst recommendations. The results contribute to the literature both in corporate governance and in financial intermediaries, where analysts play a crucial role in providing information to the various participants in financial markets.

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Section: Sample Construction and Variable Descriptionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Do analysts’ recommendations reflect co-opted boards?

Papangkorn

Chatjuthamard

Jiraporn

et al. 2020

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“…These executives also take more risks (Jiraporn et al, 2017) and retain more free cash flows (Jiraporn & Lee, 2018) than their peers. Congruently, Harris, Glegg, and Buckley (2019) suggest co-option reduces firm productivity as managers over-invest in inefficient research and development (R&D).…”

Section: Introductionmentioning

confidence: 99%

Co-opted boards and earnings management: Evidence of reduced short-termist behavior

Harris

Erkan

2021

BRQ Business Research Quarterly

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This study contributes to the emerging literature on board co-option by examining how and to what extent co-opted directors influence managers’ attitudes about earnings management. We find robust evidence that co-option mitigates both real activities and accrual-based earnings management. Our findings support the view that higher co-option reduces managerial short-termism because it enhances managers’ job security as co-opted directors are known to be less likely to remove managers from office. Our results are robust to different measures of both co-option and earnings management, and they continue to hold after accounting for endogeneity and selection concerns. Finally, we provide additional evidence showing that a higher degree of co-option lowers the likelihood of the chief executive officer (CEO) being forcefully removed from the office for managing earnings in the previous year. JEL CLASSIFICATION G30; G34; G39

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“…(2014) report that the CEO co‐opts the board when new directors are appointed, which reduces oversight and enables managers to exercise a great deal of latitude in running the firm (Jiraporn and Lee, 2018; Wilson, 2018; Withisuphakorn and Jiraporn, 2017). In support of this agency theory view, board co‐option is associated with higher CEO pay, a lower sensitivity of CEO turnover to firm performance, and more suboptimal investment decisions (e.g., Coles et al., 2014; Harris et al., 2019).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Yet, while the board is obliged to represent the interest of shareholders, studies show that directors tend to be loyal to the chief executive officer (CEO) involved in their appointment (see Coles et al., 2014; Harris et al., 2019). Co‐option gauges the board members’ allegiance to the CEO, and is, therefore, a metric for the degree to which directors feel uneasy about voicing dissent or raising contrarian views in the boardroom (see Baghdadi et al., 2020; Lee et al., 2021; Nguyen et al., 2020).…”

Section: Introductionmentioning

confidence: 99%

Director co‐option and the cash conversion cycle

Harris

Hampton

2022

J Corp Accounting Finance

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This study examines whether co-opted directors degrade or improve working capital efficiency. We find strong evidence that firms with more co-opted boards exhibit lower cash conversion cycles and so are more efficient at managing working capital. After controlling for other factors, board co-option reduces the length of the cash conversion cycle by about −1.2%, whereas the co-option of independent directors reduces the cycle by nearly −2.0%. These results persist even after addressing endogeneity and are robust to alternate measures of the cash conversion cycle. In general, our study lends credence to the argument that co-option reduces managerial myopic behavior as it reduces the likelihood of dismissal and so motivates managers to make better investment decisions that may improve firm proficiency.

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Do co-opted boards enhance or reduce R&D productivity?

Cited by 18 publications

References 16 publications

Do analysts’ recommendations reflect co-opted boards?

Do analysts’ recommendations reflect co-opted boards?

Co-opted boards and earnings management: Evidence of reduced short-termist behavior

Director co‐option and the cash conversion cycle

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