재무연구 제 권 호 (2018년 5월)
Asian Review of Financial Research, Vol., No..
pp.826~862
pp.826~862
Co-opted Boards and Stock Price Crash Risk
Chaehyun Kim School of Business Administration Ulsan National Institute of Science and Technology
Junyoup Lee School of Business Administration Ulsan National Institute of Science and Technology
Sanggeum Woo School of Business Administration Ulsan National Institute of Science and Technology
We investigate whether co-opted boards increase future stock price crash risk. Co-opted directors appointed after the CEO assume office tend to have allegiance to the CEO, attenuating board monitoring roles. Using a sample of firms for the period 1996-2014, we find robust evidence that board co-option is positively associated with stock crash risk, suggesting that weak monitoring induced by co-opted directors facilitates managerial bad news hoarding activities. Further analyses show that the impact of co-option on crash risk is more pronounced when the CEO has higher career concerns, as measured by product market competition and age, indicating that the CEO who has greater preferences for bad news hoarding is more likely to exploit opportunities relating to attenuated board monitoring to promote their personal benefits. Overall, our findings suggest that board co-option appears to decrease the effectiveness of board monitoring and the role of board monitoring is particularly important when the CEO has stronger incentives to hoard bad news.
Chaehyun Kim
Junyoup Lee
Sanggeum Woo
We investigate whether co-opted boards increase future stock price crash risk. Co-opted directors appointed after the CEO assume office tend to have allegiance to the CEO, attenuating board monitoring roles. Using a sample of firms for the period 1996-2014, we find robust evidence that board co-option is positively associated with stock crash risk, suggesting that weak monitoring induced by co-opted directors facilitates managerial bad news hoarding activities. Further analyses show that the impact of co-option on crash risk is more pronounced when the CEO has higher career concerns, as measured by product market competition and age, indicating that the CEO who has greater preferences for bad news hoarding is more likely to exploit opportunities relating to attenuated board monitoring to promote their personal benefits. Overall, our findings suggest that board co-option appears to decrease the effectiveness of board monitoring and the role of board monitoring is particularly important when the CEO has stronger incentives to hoard bad news.
