The Effect of Board Overlap on Firm Behavior

65 Pages Posted: 19 Jul 2021

See all articles by Heng Geng

Heng Geng

Victoria University of Wellington

Harald Hau

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Roni Michaely

The University of Hong Kong; ECGI

Binh Nguyen

Victoria University of Wellington - Te Herenga Waka - Victoria University of Wellington, Students

Multiple version iconThere are 2 versions of this paper

Date Written: July 15, 2021

Abstract

The staggered introduction of Corporate Opportunity Waivers (COWs) in nine US states since 2000 reduced legal risk to directors serving on multiple boards and increased intra-industry board overlap in firms characterized by intensive R&D activity. More board overlap results in a higher return on assets, higher profit margins, and higher sales revenues in spite of reduced factor inputs. The higher profitability is observed equally for new board overlap with and without own-board alteration, which rules out improved board quality as an explanation. Instead, higher profitability appears to originate in reduced firm rivalry measured by less innovation activity and increased product market segmentation rather than the synergetic exploitation of more and better corporate opportunities.

Keywords: Board interlock, corporate opportunity waivers, firm coordination

Suggested Citation

Geng, Heng and Hau, Harald and Michaely, Roni and Nguyen, Binh, The Effect of Board Overlap on Firm Behavior (July 15, 2021). Swiss Finance Institute Research Paper No. 21-40, Available at SSRN: https://ssrn.com/abstract=3887538 or http://dx.doi.org/10.2139/ssrn.3887538

Heng Geng

Victoria University of Wellington ( email )

PO Box 600
Wellington, 6140
New Zealand

Harald Hau (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute

Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Roni Michaely

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Binh Nguyen

Victoria University of Wellington - Te Herenga Waka - Victoria University of Wellington, Students ( email )

New Zealand

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