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Vertical Interlock and Firm Value: The Role of Corporate Innovation

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  • Shaopeng Cao
  • Zhenming Fang
  • Wenyan Pu
  • Yi-Yin Ruan

Abstract

This paper examines the impact of vertical interlock on firm value of listed firms in China. We find that vertical interlock significantly reduces firm value. Further, the negative effects are more pronounced when the type of vertical interlock is indirect and the interlocking position is board chairman. This association is robust to a series of robustness and endogeneity tests. Importantly, we find that reducing R&D investment caused by vertical interlock is tightly associated with the decline in firm value. Our results support the notion that vertical interlock appears to worsen corporate governance.

Suggested Citation

  • Shaopeng Cao & Zhenming Fang & Wenyan Pu & Yi-Yin Ruan, 2022. "Vertical Interlock and Firm Value: The Role of Corporate Innovation," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(4), pages 1061-1077, March.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:4:p:1061-1077
    DOI: 10.1080/1540496X.2021.1927699
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    Cited by:

    1. Guangrui Liu & Hao Qian & Qianqian Wu & Fei Han, 2024. "Research on the masking effect of vertical interlock on ESG greenwashing in the context of sustainable Enterprise development," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 196-209, January.

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