Does Board Overlap Promote Coordination Between Firms?
Swiss Finance Institute Research Paper No. 21-79
European Corporate Governance Institute – Finance Working Paper No. 803/2021
58 Pages Posted: 30 Nov 2021 Last revised: 6 Feb 2023
There are 2 versions of this paper
Does Board Overlap Promote Coordination Between Firms?
The Effect of Board Overlap on Firm Behavior
Date Written: November 24, 2021
Abstract
We investigate how board overlap affects coordination and performance among public firms. Our identification exploits the staggered introduction of Corporate Opportunity Waivers (COWs) in nine U.S. states since 2000. By reducing legal risk to directors serving on multiple boards, the COW legislation increased intra-industry board overlap for research-intensive firms that benefit most from coordination. We find that intra-industry board overlap results in greater sales revenues, increased operating margins, and higher firm profitability. These outcomes are achieved through reduced investment and lower R&D expenditure, greater bilateral product differentiation, and more information sharing reflected in higher rates of patent cross-citation.
Keywords: Board overlap, corporate opportunity waivers, firm coordination
JEL Classification: G30, G38, K21, K22
Suggested Citation: Suggested Citation