The bright side of co‐opted boards: Evidence from firm innovation

Abstract

Abstract This study documents a positive and robust effect of co‐opted boards on firm innovation. This effect is mainly driven by co‐opted independent directors. Firms with more co‐opted independent directors are associated with lower sensitivities of CEO pay and turnover to performance. It suggests that co‐opted boards promote innovation by insulating managers’ career concerns from innovation risk and supporting incentive contracts that motivate innovation. Overall, our study provides new evidence on co‐opted boards benefiting firm innovation.