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Co-Opted Boards and Cost Stickiness
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Publication Year
2020-09
Journal
재무관리연구
Publisher
한국재무관리학회
Citation
재무관리연구, Vol.37 No.3, pp.89-108
Keyword
Co-Opted BoardsCost StickinessAgency Problems코옵티드 이사회원가의 하방경직성대리인 문제
Abstract
In this study, we examine the effect of co-opted boards on cost stickiness. Co-opted directors are defined as those who are hired after a CEO takes office. We measure board co-option in two ways: the number of co-opted board members divided by the size of the board, and the sum of the co-opted directors’ tenure divided by the sum of all directors’ tenure. Cost stickiness occurs when a firm’s costs increase with an increase in activity level to a greater degree than they decrease with a decrease in activity level. We measure cost stickiness using an operating cost stickiness model. Based on a sample of 18,237 firm-year observations in the United States for the period 1995 to 2015, we show that cost stickiness increases with the proportion of co-opted board members. In addition, we show that board co-option increases cost stickiness by undermining independent directors’ monitoring effectiveness. Finally, strong governance mitigates the positive association between co-opted boards and cost stickiness. Overall, our findings are consistent with evidence from prior studies that co-opted boards represent weak board monitoring effectiveness.
ISSN
1225-0759
Language
Eng
URI
https://aurora.ajou.ac.kr/handle/2018.oak/35268
DOI
https://doi.org/10.22510/kjofm.2020.37.3.003
Type
Article
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Lee, Junyoup  Image
Lee, Junyoup 이준엽
Department of Business Administration
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