Does Board Overlap Promote Coordination Between Firms?

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