Abstract
We show that political polarization between directors and a CEO negatively impacts the effectiveness of corporate boards. At the director level, polarization increases directors’ incentive to monitor the CEO but creates a hostile board environment and discourages moderate directors’ board meeting attendance. This leads to compromised board capacity at the firm level and significantly reduces forced turnover-performance sensitivity. Our results are more pronounced in presidential election years and for firms with more monitoring and advising needs. Finally, we show that polarization in the boardroom lowers investment-Q sensitivity. Our findings highlight the real economic cost of political polarization.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
