4.7 Article

Co-opted Boards, Social Capital, and Risk-taking

Journal

FINANCE RESEARCH LETTERS
Volume 38, Issue -, Pages -

Publisher

ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/j.frl.2020.101535

Keywords

Co-opted boards; Risk-taking; Equity volatility; Sarbanes-Oxley Act (SOX); Social capital

Funding

  1. Global Research Network program through the Ministry of Education of the Republic of Korea
  2. National Research Foundation of Korea [NRF-2016S1A2A2912421]

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This study reveals a positive relationship between board co-option and equity volatility, and high social capital can mitigate managers' risk-taking incentives. The results are robust to alternative measures of social capital.
This study investigates the effect of co-opted boards on corporate risk-taking behavior, as well as the moderating effect of social capital on the relation. We find a positive relation between board co-option and equity volatility. Endogeneity concerns are circumvented using the difference-indifference methodology. We further find that high social capital surrounding firm headquarters alleviates managers' risk-taking incentives when corporate governance is weak, and that our results are robust to alternative measures of social capital.

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