Abstract
This study provides statistically and economically significant evidence that friendly boards are positively associated with firm-specific stock price crash risk. The findings suggest that firms with friendly boards are prone to groupthink-induced biases, including lapses in judgment, poor monitoring, and less sophisticated decision-making, all of which elevate the risk of stock price crash. Cross-sectional analyses document that the positive association between friendly boards and stock price crash risk is less pronounced for firms with high levels of performance-based compensation, susceptibility to hostile takeovers, significant institutional ownership, and a strong presence of religiosity. These findings imply that the adverse effects of friendly boards are diminished under specific circumstances. Additional analyses show that boards are aware that CEOs in firms with friendly boards withhold information from the market, and bad news disclosures are more prevalent in firms experiencing stock price crashes.
Keywords
Get full access to this article
View all access options for this article.
References
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
