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The Effect of Board Overlap on Firm Behavior

Author

Listed:
  • Heng Geng

    (Victoria University of Wellington)

  • Harald Hau

    (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute))

  • Roni Michaely

    (The University of Hong Kong; ECGI)

  • Binh Nguyen

    (Victoria University of Wellington - Victoria University of Wellington, Students)

Abstract

The staggered introduction of Corporate Opportunity Waivers (COWs) in nine US states since 2000 reduced legal risk to directors serving on multiple boards and increased intra-industry board overlap in firms characterized by intensive R&D activity. More board overlap results in a higher return on assets, higher profit margins, and higher sales revenues in spite of reduced factor inputs. The higher profitability is observed equally for new board overlap with and without own-board alteration, which rules out improved board quality as an explanation. Instead, higher profitability appears to originate in reduced firm rivalry measured by less innovation activity and increased product market segmentation rather than the synergetic exploitation of more and better corporate opportunities.

Suggested Citation

  • Heng Geng & Harald Hau & Roni Michaely & Binh Nguyen, 2021. "The Effect of Board Overlap on Firm Behavior," Swiss Finance Institute Research Paper Series 21-40, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2140
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    Keywords

    Board interlock; corporate opportunity waivers; firm coordination;
    All these keywords.

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