Publication: Do co-opted directors mitigate managerial myopia? Evidence from R&D investments
Issued Date
2016-05-01
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ISSN
15446123
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2-s2.0-84964678931
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Mahidol University
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SCOPUS
Bibliographic Citation
Finance Research Letters. Vol.17, (2016), 285-289
Suggested Citation
Pandej Chintrakarn, Pornsit Jiraporn, Sameh Sakr, Sang Mook Lee Do co-opted directors mitigate managerial myopia? Evidence from R&D investments. Finance Research Letters. Vol.17, (2016), 285-289. doi:10.1016/j.frl.2016.03.025 Retrieved from: https://repository.li.mahidol.ac.th/handle/20.500.14594/43605
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Title
Do co-opted directors mitigate managerial myopia? Evidence from R&D investments
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Abstract
© 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.