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Internal alliance and firm risk

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  • Sun, Liang

Abstract

This paper studies the impact of internal alliances, measured by the fraction of top non-CEO executives and directors appointed during the current CEO's tenure, on firm risk. We find that firms with more executives or directors hired after the current CEO takes office are associated with higher-risk levels. This positive association is more prominent for rural and financially unconstrained firms, as well as periods outside the financial crisis. While internal coalition does not significantly affect low-risk investment, i.e., capital expenditures, it increases high-risk investment, i.e., research and development investment. Moreover, we find that firms with strong internal alliances are associated with lower firm value. Our results survive various robustness checks. Overall, this paper suggests that internal coalition is an important determinant of firm risk. Considering this aspect of board and management structures will lead to a better understanding of firm risk.

Suggested Citation

  • Sun, Liang, 2023. "Internal alliance and firm risk," Global Finance Journal, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:glofin:v:57:y:2023:i:c:s1044028323000595
    DOI: 10.1016/j.gfj.2023.100864
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    More about this item

    Keywords

    Corporate governance; Corporate investments; Firm risk; Internal alliance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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