TITLE

Co-opted Boards

AUTHOR(S)
Coles, Jeffrey L.; Daniel, Naveen D.; Naveen, Lalitha
PUB. DATE
June 2014
SOURCE
Review of Financial Studies;Jun2014, Vol. 27 Issue 6, p1751
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
We develop two measures of board composition to investigate whether directors appointed by the CEO have allegiance to the CEO and decrease their monitoring. Co-option is the fraction of the board comprised of directors appointed after the CEO assumed office. As Co-option increases, board monitoring decreases: turnover-performance sensitivity diminishes, pay increases (without commensurate increase in pay-performance sensitivity), and investment increases. Non-Co-opted Independence—the fraction of directors who are independent and were appointed before the CEO—has more explanatory power for monitoring effectiveness than the conventional measure of board independence. Our results suggest that not all independent directors are effective monitors.
ACCESSION #
95992897

 

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