Independent directors: Exploring the heterogeneous nature of multiple directorships

Abstract

We examine the effect of independent directors’ (IDs’) heterogeneous directorships on performance and diversification of high growth firms in a sample of 1152 firm-year Australian listed company observations over the period 2007 to 2010. We find a positive association between some measures of IDs’ heterogeneous directorships and the firm performance of high-growth firms as measured by return on assets. We also find a positive association between IDs’ heterogeneous board ties and firm diversification. This study highlights that decisions concerning the appointment of IDs to corporate boards should be based on the strategic context of their other directorships. We extend the literature on multiple directorships by showing that it is not a narrow focus on the number of directorships as a proxy for reputation or busyness that matters. Instead, it is the precise nature of these directorships.