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Do Co-opted boards affect the cost of equity capital?

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  • Bhuiyan, Md. Borhan Uddin
  • Sangchan, Pinprapa
  • Costa, Mabel D'

Abstract

This paper contributes to the corporate governance and capital market literature by documenting the association between board co-option and the cost of equity capital. We argue that board co-option facilitates better CEO-director counselling and better coordination of the CEO-director relationship, which signals future earnings predictability and reduces information risk, resulting in a lower cost of equity capital. Using data from Australian listed companies from 2001 to 2015, our analyses reveal that board co-option is associated, significantly and negatively, with firms’ cost of equity and, thus, supports the beneficial view of board co-option.

Suggested Citation

  • Bhuiyan, Md. Borhan Uddin & Sangchan, Pinprapa & Costa, Mabel D', 2022. "Do Co-opted boards affect the cost of equity capital?," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004670
    DOI: 10.1016/j.frl.2021.102491
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    4. Ghafoor, Abdul & Zhichuan, Frank Li & Yousaf, Imran, 2024. "Co-opted Boards and Corporate Cash Holdings," CAFE Working Papers 27, Centre for Accountancy, Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University.

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