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How product market competition and complexity influence the on-job-learning effect and entrenchment effect of board tenure

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  • Lu, Cheng-Shou
  • Chen, Anlin
  • Kao, Lanfeng

Abstract

The on-job-learning effect implies a positive relationship between firm performance and board tenure. The entrenchment effect implies a negative relationship instead. We document a hump-shaped relationship between board tenure and firm performance. The hump-shaped relationship is eased by competition and complexity. Competition reduces the need of board monitoring while complexity raises the need of board advising leading to the dominance of on-job-learning effect over entrenchment effect and a positive relationship between board tenure and firm performance. The propensity for fraud and stock performance of M&As are non-linearly related to board tenure because of the combination of on-job-learning and entrenchment effects.

Suggested Citation

  • Lu, Cheng-Shou & Chen, Anlin & Kao, Lanfeng, 2017. "How product market competition and complexity influence the on-job-learning effect and entrenchment effect of board tenure," International Review of Economics & Finance, Elsevier, vol. 50(C), pages 175-195.
    • Handle: RePEc:eee:reveco:v:50:y:2017:i:c:p:175-195
    DOI: 10.1016/j.iref.2017.04.002
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