Busy commissioners and firm performance: evidence from Indonesia

Abstract

PurposeUsing the Indonesian setting where the government formally limits the presence of busy commissioners, the authors investigate whether a board containing busy commissioners could be beneficial or detrimental for firm performance.Design/methodology/approachThe authors propose an econometric model focusing on the impact of busy commissioners on the firm's profitability. The authors are also interested in investigating whether the effect is different between small and large firms and between mature and non-mature firms. A sample of 392 Indonesian listed firms from 2014 to 2020 is used in this study.FindingsThe authors find a negative association between busyness and performance and this result is robust across different estimations and econometrics strategies. The authors also document that the negative impact of busy directors diminishes particularly in young and small firms. The authors also find that the impact is more pronounced in state-owned firms.Practical implicationsFrom a firm point of view, the result suggests that the companies should be aware that appointing busy commissioners in the board structure can detriment market-based performance. The listed firms should also understand that busy commissioners are inefficient, especially if these firms are large, mature and state-owned.Originality/valueTo the best of the authors’ knowledge, this is the first study investigating the relation between busy commissioners and performance by considering age, firm size and state-owned firms as a moderator in a sample of Indonesian listed firms.

Do multiple directorships stimulate or inhibit firm value? Evidence from an emerging economy

“…Moreover, in Jordan, the labor market for independent directors might not be well developed; hence independent directors might devote little time and interest in monitoring the firm performance. Empirically, our finding is consistent with a body of previous studies (Haniffa and Hudaib, 2006; Non and Franses, 2007; Cashman et al , 2012; Niblaeus and Sellman, 2011; Roudaki and Bhuiyan, 2015; Saleh et al , 2020; Latif et al , 2020; Lusiana et al , 2020; and Trinugroho et al , 2022) that also indicate a negative impact of MDs on firm performance.…”

“…In the same vein, using a sample of 333 non-financial firms listed on the Pakistan stock exchange from 2006 to 2011, Latif et al (2020) document a significant negative impact of MDs on firm performance measured by Tobin's Q. Most recently, Trinugroho et al (2022) investigated whether a board having busy commissioners could be beneficial or detrimental for tom performance for a sample of 392 Indonesian listed firms over the 2014 to 2020 period. Their results reveal a significant negative impact on board busyness on firm performance.…”

Do Board Multiple Directorships and ESG Score Drive Firm Value? Study of Non-Financial Companies in Thailand

“…Following [12], [49], this study uses the percentage of busy directors per number of board members. A director is considered busy when he/she holds 3 or more directorships in other public/listed companies.…”

“…Bigger firms with larger assets normally have higher visibility to attract investor and have ability to raise fund [36], therefore tend to have higher value compared to smaller firms. Firm age is calculated by deducting the observation year from the IPO year [49]. Firm ages denote the number of years a company has been listed on the stock exchange market.…”

“…A director's role in a company involves two pivotal duties, which is to fulfill one firm's monitoring and advisory needs against the management [51], [50] Both academics and practitioners pay close attention to the corporate governance system within a corporation [49]. Maximizing shareholder values is the corporation's primary goal, and to ensure that the top management conducts the business in accordance with the shareholders interest and values, the board of directors is chosen at the annual meetings as a representative of shareholders [49]. The association between board characteristics and business performance has already been extensively studied [18].…”