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

Abstract

Purpose This study aims to examine the potential influence of multiple directorships (MDs) on the firm value of listed firms in Jordan. Design/methodology/approach Using a sample of 1,067 firm-year observations of Jordanian listed companies from 2010 to 2020, this study applies a pooled ordinary least squares regression model to examine the above-stated relationship. This technique was supported by conducting a generalized method of moments estimation to address the possible occurrence of endogeneity concerns. Findings The results show a significant negative relationship between MDs and firm performance, thereby supporting the “Busyness Hypothesis”, which suggests that directors with MDs are expected to be over-committed, too busy and less vigilant. Thus, their ability to effectively monitor the company management on behalf of the shareholders is quite limited. Originality/value To the best of the authors’ knowledge, this is the first study in Jordan, and one of the very rare studies in the Middle Eastern and North African region, to examine the relationship between MDs and firm performance. This study provides important policy and practitioner implications in the field of corporate governance by highlighting the necessity of imposing stricter limits on the number of directorships allowed for board directors. Crucially, the empirical evidence implies that limited directorships ensure that directors are able to fulfil their board responsibilities appropriately, which is significantly associated with the firm value.

Does capital structure matter? Evidence from family-owned firms in Jordan

“…According to Omondi and Muturi (2013), a company's performance is a function of the organization’s ability to obtain and manage its resources in order to develop a competitive advantage (Gallegos Mardones and Ruiz Cuneo, 2020). Corporate performance can be divided into two main categories, namely; accounting-based measures, for example, ROA (Haniffa and Hudaib, 2006; Abdallah and Ismail, 2017; Saidat et al ., 2019: 2020a, b; Marashdeh et al ., 2021) and market-based measures, for example, Tobin's Q (Christensen et al ., 2015; Saidat et al ., 2020a, b; Alhaddad et al ., 2022).…”

Busy CEOs and audit fees: evidence from Indonesia

“…In contrast, the latest research from Ratri et al (2021) proposed that a busy CEO holds positions in multiple organizations and that this situation is related to their effectiveness at work. In general, there are two different arguments about busy CEOs: the quality hypothesis and the busyness hypothesis (Alhaddad et al , 2022). According to the quality hypothesis, a busy CEO may be a CEO with a positive reputation, suggesting high-quality performance in managing the company (Fama, 1980; Fama and Jensen, 1983).…”

“…Thus, their ability to monitor and lead the company to the fullest extent possible is limited. Previous studies have proven that busy directors significantly reduce company performance (Alhaddad et al , 2022; Cashman et al , 2012). Furthermore, Bazrafshan and Hesarzadeh (2022) found that busy directors significantly reduce the overall company productivity.…”

“…A busy director is less likely to provide the necessary oversight of the company’s operations (Alhaddad et al , 2022; Harymawan et al , 2019). This can cause auditors to perform additional work to ensure that the transactions and operations conducted by the company comply with the applicable regulations and policies.…”

“…The board of directors uses the monitoring and supervision mechanism to assess the company’s overall risk by designing effective internal control and risk management (Financial Reporting Council, 2018). Standards that define the responsibilities and strategic objectives of the company are needed to achieve the interests of shareholders and other stakeholders (Alhaddad et al , 2022; Masli et al , 2022; Uhlaner et al , 2021).…”