Board Composition and Relationship-Specific Investments by Customers and Suppliers

摘要

Firms are more likely to include a supplier-customer on the board if the supplier-customer invests more in relationship-specific assets. The results are stronger when the firm has poorer financial reporting quality or is financially distressed, as well as post-SOX. Suppliers-customers also increase their relationship-specific investment following their appointment to the board. Directorships help avoid underinvestment and mitigate contracting frictions by reducing information risks and strengthening informal contracts with the firm.