Journal
JOURNAL OF CORPORATE ACCOUNTING AND FINANCE
Volume 33, Issue 2, Pages 129-141Publisher
WILEY PERIODICALS, INC
DOI: 10.1002/jcaf.22540
Keywords
board co-option; cash conversion cycle
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This study finds that co-opted boards can reduce the cash conversion cycle and improve working capital management efficiency. Co-option reduces managerial myopic behavior and motivates better investment decisions.
This study examines whether co-opted directors degrade or improve working capital efficiency. We find strong evidence that firms with more co-opted boards exhibit lower cash conversion cycles and so are more efficient at managing working capital. After controlling for other factors, board co-option reduces the length of the cash conversion cycle by about -1.2%, whereas the co-option of independent directors reduces the cycle by nearly -2.0%. These results persist even after addressing endogeneity and are robust to alternate measures of the cash conversion cycle. In general, our study lends credence to the argument that co-option reduces managerial myopic behavior as it reduces the likelihood of dismissal and so motivates managers to make better investment decisions that may improve firm proficiency.
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