The Effect of Friendly Boards on Asset Prices: Evidence From Stock Price Crash Risk
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.
Authors
- Avishek Bhandari (ORCID: https://orcid.org/0000-0002-2301-3723)
- Md Noman Hossain (ORCID: https://orcid.org/0000-0002-8076-6086)
- Md Nazmul Hasan Bhuyan (ORCID: https://orcid.org/0000-0003-4455-0066)
- Meena Subedi (ORCID: https://orcid.org/0000-0001-6663-4821)
Institutions
- California State University, Fullerton (US)
- University of Wisconsin–Whitewater (US)
- Carroll University (US)
- North Carolina Agricultural and Technical State University (US)
Publication Details
- Journal
- Journal of Accounting Auditing & Finance
- Published
- 2025-09-02
- DOI
- https://doi.org/10.1177/0148558x251368670
- Citations
- 1
- Primary Topic
- Corporate Finance and Governance
- Type
- article
- Field-Weighted Citation Impact
- 3.91