Director co-option and future market share growth |
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| Affiliation: | 1. Department of Finance and Investment, College of Economics and Administrative Sciences, Al-Imam Mohammad Ibn Saud Islamic University (IMSIU), Riyadh 5701, Saudi Arabia;2. LARTIGE, ASTURIMA, University of Sousse, Tunisia;3. Indian Institute of Management (IIM) Bodh Gaya, Bodh Gaya, India;4. Lebow College of Business, Drexel University, Philadelphia, USA;5. Institute of Business Research, University of Economics Ho Chi Minh, Vietnam;2. University of Rome Tor Vergata, Dipartimento di Economia e Finanza, Via Columbia 2, 00133 Roma, Italy;4. Università Politecnica delle Marche, School of Business Giorgio Fuà, Money and Finance Research Group (MoFiR), Piazza Martelli 8, Ancona, Italy |
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| Abstract: | This paper examines the effect of director co-option on product market outcomes. We find that future market share growth declines as executives co-opt more of the board. Co-opted directors also inhibit the product market benefits from cash reserves. These findings hold in a variety of robustness tests, sustaining the view that director co-option reduces product market performance. Our results further show that co-option leads to lower market share gains among firms whose industry rivals intensely change products and have higher borrowing capacity. Compared to their competitors, firms with more co-opted directors also allocate less internal resources to potential product differentiation strategies, but award executives more cash-based pay. Overall, our findings support the agency theory supposition that firms with co-opted boards lose market share ex-post. |
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| Keywords: | Director co-option Market share growth Agency theory |
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