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-performance and turnover-performance. It...

We find that co-opted boards facilitate more erratic and arbitrary decision-making, contributing towards default risk. A one standard deviation increase in co-option increases default risk by 11% relative to normal levels. Supporting the notion that co-option makes decision-making more erratic,...