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<p>This study examines how co-opted boards influence corporate risk-taking and financial outcomes. Following Coles, Daniel, and Naveen (2014), we measure board co-option as the proportion of directors appointed after the CEO assumes office. Using a panel of U.S.-listed firms from 1996 to 2022, we find that board co-option significantly weakens board independence and oversight, enabling CEOs to pursue excessive risk-taking. These effects are particularly pronounced in firms with weak external governance—those operating in high-corruption states and with lower institutional ownership. Importantly, the heightened risk-taking associated with co-opted boards ultimately erodes firm performance. Our findings suggest that co-opted boards not only fail to constrain managerial opportunism but also exacerbate agency problems, leading to greater risk exposure and inferior financial outcomes. This study highlights the critical governance costs of board co-option and its detrimental impact on corporate decision-making.</p>

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Repay a Favor? Evidence from Co-opted Boards and Corporate Risk-Taking

  • 期刊论文

  • 发表日期：

    2026年1月17日

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  • Quang-Thai Truong,
  • Quynh-Nhu Tran,
  • Aldrich Alfatera Unpapar,
  • Robin Chen

摘要

This study examines how co-opted boards influence corporate risk-taking and financial outcomes. Following Coles, Daniel, and Naveen (2014), we measure board co-option as the proportion of directors appointed after the CEO assumes office. Using a panel of U.S.-listed firms from 1996 to 2022, we find that board co-option significantly weakens board independence and oversight, enabling CEOs to pursue excessive risk-taking. These effects are particularly pronounced in firms with weak external governance—those operating in high-corruption states and with lower institutional ownership. Importantly, the heightened risk-taking associated with co-opted boards ultimately erodes firm performance. Our findings suggest that co-opted boards not only fail to constrain managerial opportunism but also exacerbate agency problems, leading to greater risk exposure and inferior financial outcomes. This study highlights the critical governance costs of board co-option and its detrimental impact on corporate decision-making.