코옵티드(Co-Opted)이사와 원가의 하방경직성

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.