Going overboard? On busy directors and firm value

Abstract

The literature disagrees on the link between so-called busy boards (where many independent directors hold multiple board seats) and firm performance. Some argue that busyness certifies a director's ability and that such directors are value enhancing. Others argue that "over-boarded" directors are ineffective and detract from firm value. We find evidence that (1) the disparate results in prior work stem from differences in both sample composition and empirical design, (2) on balance the results suggest a negative association between board busyness and firm performance, and (3) the inclusion of firm fixed Highlights ► The disparate busy director findings result from different samples and methodology. ► Including firm fixed effects results in a constant negative relation. ► The common busy director definition is as informative as more intense alternatives.

Performance effects of appointing other firms’ executive directors to corporate boards: an analysis of UK firms

“…Most empirical studies, including Core et al. (1999), Fich and Shivdasani (2006) and Cashman et al. (2012) report some support for the busyness hypothesis.…”

Supervisory boards, financial crisis and bank performance: do board characteristics matter?

“…The Busyness Hypothesis postulates that serving on too many directorships reduces directors' time and attention and, consequently, their ability to monitor management, thereby decreasing firm value. While the number of directorships, according to some studies, appears to be closely linked to directors' reputational capital, other studies suggest that too many directorships may lower the effectiveness of outside directors as corporate monitors (e.g., Core et al, 68 Shivdasani and Yermack, 69 Loderer and Peyer, 70 Fich and Shivdasani 71 and Cashman et al 72 ). Regarding the financial crisis period Francis et al 19 find that the number of directorships has no impact on non-financial firms' performance.…”

The role of corporate governance in the relationships of family company with real earnings management

“…While the busy board of commissioner according to Cashman et al (2012) in the results of his research shows a negative relationship between performance with the busy board of commissioners. The busier the commissioner the lower the variability of the company's performance.…”

“…The busier the commissioner the lower the variability of the company's performance. In this study because of the need for internal control over earnings management by family companies, then using the opposite measurement from research Cashman et al (2012), that is less busy board of commissioners will make better the company's performance, so it can conduct intense supervision and reduce the company to perform earnings management that its manipulative and opportunistic.…”

“…The Busy board of commissioner is a dummy variable equal to zero if more than 50% board of commissioners holds three jobs elsewhere, and 1 if otherwise. According to Cashman et al (2012), the results of his research showed a negative relationship between performance with the busy board of commissioners, the busy board of commissioner then the lower variability of the company's performance. In this research because of the need of internal control over earnings management done by family company, hence using the opposite measurement from research of Cashman et al (2005), that is less busy board of commissioner hence the better the company performance, so can do intense supervision and reduce companies to conduct earnings management that its manipulative and opportunistic.…”