Do Co-Opted Directors Mitigate Managerial Myopia? Evidence from R&D Investments
13 Pages Posted: 3 Apr 2016
Date Written: March 29, 2016
We explore the effect of co-opted directors on R&D investments. Co-opted directors are those appointed after the incumbent CEO assumes office. Because a co-opted board represents a weakened governance mechanism that diminishes the probability of executive removal, managers are less likely to be removed and are more motivated to make long-term investments. Our evidence shows that board co-option leads to significantly higher R&D investments. To draw a causal inference, we execute a quasi-natural experiment using an exogenous regulatory shock from the Sarbanes-Oxley Act (SOX). Our results reveal that the effect of board co-option on R&D is more likely causal.
Keywords: co-opted directors, co-opted board, board co-option, R&D, myopia, corporate governance
JEL Classification: G30, G34
Suggested Citation: Suggested Citation