Learn From Ties: The Effect of Board Interlocks on Asymmetric Cost Behavior

ABSTRACT This study investigates the relationship between board interlocks and asymmetric cost behavior. We argue that board interlocks facilitate resource allocation decisions by providing business‐related information that can reduce uncertainty about future demand. Using cost stickiness as a proxy for operating decisions related to resource adjustment, we find that firms with a higher proportion of interlocking directors exhibit significantly less sticky cost structures. Moreover, the negative association between board interlocks and cost stickiness is stronger for firms facing greater demand uncertainty, when the value of information is higher, and when interlocking directors demonstrate greater information‐processing capabilities. These findings are robust to alternative network‐based measures of board interlocks and hold after addressing potential endogeneity. Overall, our study highlights the informational role of interlocking directors in influencing firms’ resource adjustment and cost behavior.