Monitoring and Advisory Co-Opted Directors and Firm Value

Departing from the existing literature, this study disaggregates co-opted directors (those appointed after the incumbent CEO assumes office) into monitoring co-opted (MCOP) and advisory co-opted (ACOP) directors and examines their associations with firm value. Based on a sample of UK non-financial firms from 1999 to 2020, MCOPs are found to be negatively associated with firm value, measured by Tobin’s Q. However, there is no evidence to suggest that ACOPs have a statistically significant impact on firm value. These results remain robust to alternative measures of firm value, tenure-weighted measures of co-option, and endogeneity concerns. Additional analyses show that ACOPs are positively associated with firm value when firms have greater advising needs, whereas the negative valuation effect of MCOPs is attenuated by stronger board-level governance attributes, namely board gender diversity, CSR committee presence, and industry-relevant board expertise. Overall, the results suggest that CEO–director allegiance arising from board co-option has different valuation implications across monitoring and advisory roles.