Substitutes or complements? Co-opted boards and antitakeover provisions

Abstract

ABSTRACT We examine the relationship between co-opted boards and the adoption of antitakeover provisions (ATPs). Prior studies suggest that co-opted directors appointed after the current CEO assumes office provide weak monitoring. Consistent with the substitution view, we find that firms with greater co-option on the board adopt fewer ATPs. This result suggests that co-opted boards enable CEOs to pursue less additional entrenchment, thereby reducing the adoption of ATPs. Importantly, we find that co-opted boards explain the degree of ATPs beyond the traditional measure of board monitoring effectiveness, and even independent directors are associated with fewer ATPs once they are captured by CEOs.