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Director co-option and future market share growth

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  • Harris, Oneil
  • Nguyen, Trung

Abstract

This paper examines the effect of director co-option on product market outcomes. We find that future market share growth declines as executives co-opt more of the board. Co-opted directors also inhibit the product market benefits from cash reserves. These findings hold in a variety of robustness tests, sustaining the view that director co-option reduces product market performance. Our results further show that co-option leads to lower market share gains among firms whose industry rivals intensely change products and have higher borrowing capacity. Compared to their competitors, firms with more co-opted directors also allocate less internal resources to potential product differentiation strategies, but award executives more cash-based pay. Overall, our findings support the agency theory supposition that firms with co-opted boards lose market share ex-post.

Suggested Citation

  • Harris, Oneil & Nguyen, Trung, 2022. "Director co-option and future market share growth," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:ecofin:v:62:y:2022:i:c:s1062940822000614
    DOI: 10.1016/j.najef.2022.101709
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    More about this item

    Keywords

    Director co-option; Market share growth; Agency theory;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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