Co-opted boards and capital structure dynamics

This study examines the effects of co-opted directors and further tests monitoring effectiveness non-co-opted independent on capital structure decisions. Employing a large sample 2548 US firms over 1996–2015 period, we find strong evidence that boards exert positive significant influence firms' financial leverage. We also that, whereas are positively associated with leverage, have negative firm's leverage ratio, suggesting co-option weakens effective monitoring, thereby increasing ratio. Further analysis indicates adjust towards target levels at faster speed, half-life within year for book market Lastly, our results show agency costs managerial discretion stockholder-bondholder conflicts arising from board important drivers relative to tax incentives. Our robust alternative measures co-option, endogeneity concerns. • examine Firms firm year. tend corporate decisions differently.