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Going overboard? On busy directors and firm value

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  • Cashman, George D.
  • Gillan, Stuart L.
  • Jun, Chulhee
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    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 effects dramatically affects the conclusions drawn from, and the explanatory power of, multivariate analyses. We also explore alternative empirical definitions of what constitutes a busy director and find that commonly used proxies for busyness perform well relative to more complex alternatives.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 12 ()
    Pages: 3248-3259

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:12:p:3248-3259

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Corporate governance; Boards of directors; Busy directors;

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    References

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    1. Renée B. Adams & Heitor Almeida & Daniel Ferreira, 2005. "Powerful CEOs and Their Impact on Corporate Performance," Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1403-1432.
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    3. Jiraporn, Pornsit & Kim, Young Sang & Davidson III, Wallace N., 2008. "Multiple directorships and corporate diversification," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 418-435, June.
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    7. Anil Shivdasani & David Yermack, 1999. "CEO Involvement in the Selection of New Board Members: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 54(5), pages 1829-1853, October.
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    10. Brickley, James A. & Linck, James S. & Coles, Jeffrey L., 1999. "What happens to CEOs after they retire? New evidence on career concerns, horizon problems, and CEO incentives," Journal of Financial Economics, Elsevier, vol. 52(3), pages 341-377, June.
    11. Jiraporn, Pornsit & Davidson III, Wallace N. & DaDalt, Peter & Ning, Yixi, 2009. "Too busy to show up? An analysis of directors' absences," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 1159-1171, August.
    12. Wintoki, M. Babajide & Linck, James S. & Netter, Jeffry M., 2012. "Endogeneity and the dynamics of internal corporate governance," Journal of Financial Economics, Elsevier, vol. 105(3), pages 581-606.
    13. Jiraporn, Pornsit & Singh, Manohar & Lee, Chun I., 2009. "Ineffective corporate governance: Director busyness and board committee memberships," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 819-828, May.
    14. Harford, Jarrad, 2003. "Takeover bids and target directors' incentives: the impact of a bid on directors' wealth and board seats," Journal of Financial Economics, Elsevier, vol. 69(1), pages 51-83, July.
    15. Stephen P. Ferris & Murali Jagannathan & A. C. Pritchard, 2003. "Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments," Journal of Finance, American Finance Association, vol. 58(3), pages 1087-1112, 06.
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    Cited by:
    1. Field, Laura & Lowry, Michelle & Mkrtchyan, Anahit, 2013. "Are busy boards detrimental?," Journal of Financial Economics, Elsevier, vol. 109(1), pages 63-82.
    2. Muravyev, Alexander & Talavera, Oleksandr & Weir, Charlie, 2014. "Performance Effects of Appointing Other Firms' Executive Directors to Corporate Boards: An Analysis of UK Firms," IZA Discussion Papers 7962, Institute for the Study of Labor (IZA).

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