Board Co-option and Excess Cash Holdings
Abstract/Description
This study examines how board co-option resulting from appointing directors after the chief executive officer (CEO) assumes office affects corporate excess cash holdings. An analysis of a sample of U.S. firms over the 1996–2018 period reveals a significantly positive relationship between co-opted directors and excess cash holdings. The results are robust to alternative variable definitions and persist after entropy balancing and a difference-in-differences analysis. Cross-sectional tests demonstrate that co-opted directors are more likely to hold excess cash in firms with weaker internal monitoring due to low director compensation and longer CEO tenure. Furthermore, external monitoring resulting from high institutional ownership and financial analyst coverage moderates the positive relationship between co-opted directors and excess cash holdings. Finally, the interaction between co-option and excess cash results in lower firm value.
Keywords
Corporate Governance, Agency Costs, Board Monitoring, Chief Executive Officer (CEO), Co-Opted Directors, Excess Cash Holdings
Track
Finance
Session Number/Theme
Finance - Session II
Session Chair
Dr. Noureen Ayaz
Start Date/Time
14-6-2025 10:55 AM
End Date/Time
14-6-2025 12:35 PM
Location
MCC 12 Ground Floor, AMAN CED Building
Recommended Citation
SARANG, A. (2025). Board Co-option and Excess Cash Holdings. IBA SBS 4th International Conference 2025. Retrieved from https://ir.iba.edu.pk/sbsic/2025/program/99
COinS
Board Co-option and Excess Cash Holdings
MCC 12 Ground Floor, AMAN CED Building
This study examines how board co-option resulting from appointing directors after the chief executive officer (CEO) assumes office affects corporate excess cash holdings. An analysis of a sample of U.S. firms over the 1996–2018 period reveals a significantly positive relationship between co-opted directors and excess cash holdings. The results are robust to alternative variable definitions and persist after entropy balancing and a difference-in-differences analysis. Cross-sectional tests demonstrate that co-opted directors are more likely to hold excess cash in firms with weaker internal monitoring due to low director compensation and longer CEO tenure. Furthermore, external monitoring resulting from high institutional ownership and financial analyst coverage moderates the positive relationship between co-opted directors and excess cash holdings. Finally, the interaction between co-option and excess cash results in lower firm value.
